From valuing a business to understanding the pros and cons of buying an existing business, we can help you assess and decide on the best course of action.
We can also assist you in finding finance, writing a business plan and even help you negotiate the deal.
How to value a business
Valuing a business can be a subjective matter however it has been said:
A business is only worth precisely what someone is willing to pay for it – and what you are preapred to sell it for.
The most common valuation method is based on the amount of profits your company generates
Value = Adjusted Net Profit x Multiplier
For example, if your company profits before tax amounts to £100k then an indication of its possible value could be £400k
However, you must use an adjusted net profit figure. which is based on standard arms length principle.
For example, you cannot reduce your salary to £nil in order to increase the net profits and therefore increase the valuation!
Another figure that might be used is the Earnings Before Interest and Tax (EBIT)
If your company has been trading for a while and you have built up large cash reserves which earns interest. Your buyer will want to remove the interest figure as this has been generated from trading.
The difficulty is deciding what multiplier to use
The multiplier will vary and it will depend on the company, market, economic climate and other factors.
You should consider the following points:
- Research similar companies that are currently been sold to determine current market rates
- The lower the risk the higher the multiplier
- The more sustainable the profit the higher the multiplier
You should also condier other points such as:
- Tax opportunities on selling your business
- The costs of selling your business
- The reasons why people are selling a business
Pros and Cons of buying an existing business
When buying a business you don’t want to hear the words skeleton or cupboard in the same sentence. Make sure you get it right! It is extremely importnat when considering how to acquire the target business. Please feel free to call us to discuss the many issues that arise when buying an existing business.
What are the advantages or disadvantages to franchises?
The main advantage is the proven idea; the main disadvantage; costs or restrictions. You have got to way up the pro’s and con’s and there are many check lists you can use to help you decide whether this is the right option for you.
Can I franchise my business?
Quite possibly yes; though it’s not as simple as it looks and can take up a lot of time and effort with new franchisees. You will also need to take legal advice to ensure your position is protected.