Business Valuations
What is the value my business and how can I increase it?
The owners of businesses which look at the value of the business on a regular basis are able to identify factors which are impacting on value and need to be addressed. They are also able to identify opportunities to enhance the value of the business. Furthermore, they can identify the optimum time to exit because of the progress on matters that we can identify that increase or decrease the value of their business.
How do you value a business?
A business is usually valued using a combination of general rules of thumb and industry-specific and business-specific issues
Rules of Thumb
·Comparison to public company market values i.e. what a stock market quoted company would be valued at.
·Comparison to the sales prices achieved for similar types of businesses in recent transactions
·Discounted Future Cash Flows where all cash to be received in the future is brought to a value in cash today using interest rates – but in reverse. Cash tomorrow is worth less than cash today.
·The value of the assets in the business less the liabilities in the business.
·Non-operating assets such as surplus cash or property – these assets may add additional value to the business and should be considered separately. Industry and business specific
·Trends in turnover of the business and market share·Operating Margins achieved by the business in comparison to your competitors
·Trends in free cash flow
·Level of investment – under invested businesses attract a discount while an overinvested business does not always attract a premium.
·Consistency of performance·Management team – How critical are they to delivering the margins/sales/cashflow. Are they staying or going? How can management be retained?
·Staff – Are they critical to the business? If so how mobile are they?
·Business size
·Level of competition in the market and the outlook for the market.
·Technology capability and how technology will impact on the business in the future·Tax
·Is the industry in an attractive industry sector
·Number of potential trade and financial buyers
·General Economic conditions
