Suuba

How do you find out how much your company is worth?


is it in the accounts or assets..




Its just a good friend of mine is looking to sell his shop off.

The Zohan

Lot of things to factor in and depends what sort of company/area of business.

Does he own the premisis and is is part of the deal
Goodwill
Turnover
client list
Fixed assets
No of staff - intellectual property
etc

Suuba

He rents but he's just payed off all the rent for the next year, so whoever buys it will have a rent free shop..

He has no staff, why does this effect the value? and what is meant by goodwill?

The Zohan

Goodwill - it is really repeat business, do people go to the shop because they want to as well as it being close/cheap.

Staff are usually a cost to the business and may be difficult to replace or get rid of


In which case how long is left on the lease/rental agreement, is there an option to extend. Will it be out of a fixed cost arrrangemtn so the landlord can put it up as much as they want???

No exactly sure how to value it. He must know his profit etc so a good start. It might well be worth him talking to his accountant who will have some idea or put him onto someone who can value it

Most people/purchasers may well make an offer or offer what your mate wants for it then will perform a 'due dilligence' which basically means they will go over the books with a fine tooth comb, meet the staff and chat to them. Look at rents/leases assets etc to see if it is viable and then either withdraw or take it forward.

Suuba

So how do they calculate the 'value' of the business through the turnover..

I believe he turns over around £80k as its a very upmarket shop. then add on the valued assets of that business to the above figure that comes out of the turnover?

The Zohan

If his tuernover is £ 80k and his cost are 70k then it is not very profitable however if his costs are say 10K then he ain't doing too bad.

Is his turnover/profit rising year on year or in decline, etc

RichWalk

Speak to an accountant as there are many ways of valuing its worth and also a series of personal tax implications that can apply.

Various industries value at ratio's of your nett profit often around 3.5 to 4 times this figure, you can also use the 'share-holders funds' figure as a guide but then you need to value stocks if there are any (banks value stock at lowest returnable or 10% of book value)

Good will if entertained as an additional worth needs to be equated by both parties; if people in the area say the shop is a flurrishing business and always busy then the seller would expect (if you are trading in the same way) some recompense for its ongoing value, however if you believed that changing the shop to sell something totally different would produce more profits, you would have a hard job convincing the seller this made his business worth more or less.

Fat Boy

Probably not worth very much to be honest - he doesn't own the building ( and most lease agreements preclude the property being handed over to a new tenant without the landlord's approval - which they can use to demand a new deposit or change of rate), he doesn't have any long term contracts -just customers who may or may not come back, £80k turnover probably translates to £20K profit (being generous), staff not worth anything, so if I was buying it I would probably offer around the £10-15k mark as a gesture to say see you to the current operator...

Most companies are valued on multiples of their operating profit with adjustments being made for fixed assets, goodwill ( does it have a good name that will help it retain existing business or not), the debtor/ creditor balance and are you assuming debt or not. This is a very small business with almost nothing in the way of assets ( other than stock and perhaps some small intangible assets/ goodwill) so very little value. Sorry.

Suuba

Thats ok, to be honest i think he's just wanting to leave the game of owning a business..


he's just after a wee bit of cash at the end to pay off any debt he has (clear the slate and start again)


cheers for the help