Buying or selling your business can be complicated and expensive for both parties if it’s not handled correctly and no two transactions are the same. We can provide you with the assistance and guidance you need to steer you through the process so that you can put your plan together and are able to manage negotiations through to completion. We’ll help you avoid any pitfalls, ultimately saving you time, money and a lot of unnecessary stress.
The way in which you buy or sell a business can have significant ramifications with the main driver usually being tax. If it’s a limited company, the decision as to whether you buy the assets as opposed to the shares can give rise to completely different outcomes and costs. We can advise you on the best route to take and help you to balance them with the competing interests of the party you are dealing with at an early stage.
Get a professional valuation for the business and research any funding that you might need at an early stage.
There are a number of different ways of valuing a business, depending on what type it is, and usually a combination are used to provide a range of values. We have the expertise to assist you and to talk you through the rationale for the most appropriate methodology. Below is a summary of the more common approaches to give you a flavour.
Asset valuation: if your business has significant tangible assets for example any property or machinery. You would add up your assets subtract your liabilities to give you the overall value.
Price earnings ratio: this would be used to value a business which is making significant and sustainable profits. To do this you would multiply its profits by an appropriate multiple or price earnings (P/E) ratio. As P/E ratios can vary widely, you would use commercial knowledge of the particular industry sector or market to establish at what level it should be set.
Discounted cash flow: this would be used for a business which is forecasting significant and steady cash flow for a number of future years. The discount rate used will take today’s value of the predicted cash flow and will apply a discount rate which accounts for the time value of money plus the risks of operating in that particularl industry sector. So £1 earnt today will be worth less than £1 earnt in a year’s time.
Industry rules of thumb: some established sectors have a set standard formula for calculating the value of businesses operating in them. It could be a set multiple of turnover or it could be based on the number of customers the business has.
Entry cost: this methodology looks at the cost of setting up a similar business from scratch and using the anticipated the costs as a way of putting a value on it. For example they could include the development costs for your product or service, recruiting and training staff, and buying equipment.