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How much is your company's worth?

Posted on 9 August, 2016 at 19:15

How much is your company’s worth?

This question is often asked when you are planning to buy or sell. This can be a lifetime event for a business owner who may face many unknowns and uncertainties. From my experience, both buyers and sellers would like to settle a purchase price based on fair market value , no matter whether the transaction is an asset sale or share sale. Certainly, a purchase price can be different than fair market value based on:

a. Different negotiation skills and abilities between buyers and sellers;

b. The structure and consideration of the purchase price;

c. Various levels of knowledge between the buyer and the seller; and

d. Benefits relating to buyer-specific synergies and other economic benefits as uniquely perceived by buyers.

For a going concern operation, the following are some of the considerations that may affect the value and the commercial goodwill of a company:

• Management team and staff continuity

• Quality of customers/clients

• Choices of suppliers

• History of a company

• Types of services/products

• Types of contracts

• Size of revenue/revenue model

• Discretionary cash flow/earnings/EBITDA

• IP/Technology

• Internal control

• Location of a business

• Requirement of sustaining capital expenditure

• Capital structure and debt component

• Tax losses carry forward, tax shield related to existing depreciable assets

Any non-recurring, one-time expenses should be adjusted from the operational income, as well as, normalized any related parties/non-arm’s length transactions if they are not dealing at market rates. Any redundant assets that are not directly related to the operations will be an additional value for a company.

Business valuation is prospective and at a point in time. If a company experiences material changes after the valuation date, an updated valuation will be considered in the future.

For further questions on business valuations, please contact Mary Gamble for a free consultation. 

 

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