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.