Terminator X

iTrader: (7)

Is there an industry standard & how would you guys work it out? This is for a business with little tangible assets ie firm is mostly made up of people only.

Cheers, TX.

dpb

Youve got to put a figure on 'goodwill' havnt you ??

tricky

MalcB

Interesting topic. Been wondering about selling my business. Some people
reckon valuation can be based on a multiple of annual gross profit. Depending
on the type of business it can be up 6 x GP I think. However, if the business revolves around individuals I expect it is somewhat less.

AndyC_772

iTrader: (2)

It's very hard to judge. Does the business own any significant IP or have any valuable contracts? Does it have a well-known brand or significant market share in a particular area?

Devildog

There's no real "standard" way of doing it, as it differs from business to business.

If you need a very simple formula, however, you can throw up some numbers along the lines of:

Net profit p/a x max number of years after which the purchaser expects a return on investment + net asset value

So if you've got a business with £500k of net assets (ie free of any security or finance) which generates a net £100k a year, and in that industry any purchaser would expect a return on the outlay in not more than 5 years then the business is worth not more than £1m

But thats way over simplifying it. Ultimately its what anyone is willing to pay.

PLC's are of course different, as are banks, etc, etc, etc.

SJ_Skyline

Echo what's been said above.

You might consider the sum of assets: tangible (buildings, contents, stock, etc.) and intangible (IPR, staff experience, contracts, pipeline, etc.) You may even want to put a weighting on these, as you suggest there are few tangible assets with the understood value of the business with its people - your major risk here is that they all clear off and take the clients with them!

As has been mentioned before: ROI is another measure but of course the last couple of years figures may well be skewed.

Spot on

Offer less than half the asking price and negotiate based on their reaction

Fat Boy

Multiple of true EBITDA +/- debtors/creditors. The multiple varies by industry sector/ business vitality i.e. a growing business in sexy industry might get double figure multiples, a moribund business probably won't sell or for a very low figure.

For a people business you need to make sure that the crucial people are all tied in properly - good contracts/restrictive covenants.

Lots more to it than that but that's a back of a *** packet description

stilover

You need to get a decent accountant. My old man is going through this now (retired and wanting to sell).

It's based on Assets, Bank balance, and profitability.

The only problem is getting people who don't know how to value a company to believe those that do, instead of pulling dumbass valuations out of thin air of around a third of the true value.

Terminator X

iTrader: (7)

The company in question is quite large, 2000+ people worldwide with a turnover of c£150m+ p/a. There's a good reason for asking albeit I don't want to post it here ... happy to PM any interested parties though in order to get a more appropriate response.

TX.

Fat Boy

Go on then.

It's what I do for a living...

Simon K

hi,

I would be interested in this, so can you pm me ??

I might be ina similar situation soon.

SBK

Fat Boy

? All gone quiet.

Terminator X

iTrader: (7)

Apologies fella didn't see your post. PM incoming ...

TX.

Fat Boy

No worries. Will give it a gander when it turns up.

Fat Boy

Replied.

Cheers

FB