Blog

Jul 07

Indicative Valuations

Posted by Katie Pinfold at Monday, July 07, 2014

Indicative Valuation of a Business

Sometimes we get asked to make a comment on what we think a business is worth. Often this comes from a person who is thinking they may want to sell, or the person is just inquisitive as to what their business might fetch.

We are happy to give an indicative indication of what we think the business may be worth but we always stress that in the end it is only the market that will determine the price.

We employ a number of methods to give a price that a business might fetch, and it will usually be a range between a lower amount and a higher amount.

Valuations depend on a number of things including:

  • Is the business the kind that will appeal to a person who only wants to “buy a job”. In other words there is a reasonable wage the owner can earn but not much more.
  • Contrast this to a business that not only rewards its owner with a good market salary, but also generates very healthy profits as well.
  • What kind of business is it – is it likely to be sustained and gather momentum for the future or is it a sunset type business with little future growth?
  • Is it a business that has lots of potential but no real current results to back it up?

If you want to discuss this subject some more, do give us a call. We always leave the formal valuations to a specialist group of advisors we employ. But if you just want to get an idea of what your business might fetch then we would love to join you in the conversation.

Craig Weston, Director

Inspired Accountants Ltd

E craig.weston@inspired.co.nz | P 09 969 7450

 

May 09

Selling a business - a client story

Posted by Craig Weston at Friday, May 09, 2014

“The time has come – I want to put my business on the market”

In our accounting business, this is a phrase we hear from our clients from time to time. I suspect we may hear it quite a bit more over the coming few years.

It has been said for quite some time now that “baby boomers” will be retiring in droves and there will be a huge number of businesses going on the market. Well, we haven’t quite seen that yet.

Anecdotal evidence suggests that these “baby boomers” may have been holding off selling because they don’t know what to do afterwards (“what am I going to do after I sell up?”) and perhaps because the GFC delayed them getting a good price.

In any event, we will likely see more businesses changing hands soon, so if you are thinking of selling, it may pay you to read on…….

We recently assisted a client to sell their business. Our client was a long standing one – he and his wife had been in the business for over 30 years and had done pretty well. As with most businesses, there had been some lean years but overall the business had provided them with a good life.

They used a broker to help them sell the business. The broker found the buyer and facilitated the necessary communication and agreements between the parties. Using a good broker can help the process hugely. Brokers already know a range of potential buyers and can often match those with the seller.

There was a time for due diligence – this is where a price is already agreed on but the deal is still subject to the purchaser checking “under the bonnet” to make sure the business runs well and what is being represented by the seller is in fact true eg are the sales that are reported, actually there & likely to be there in the future?

In the end the deal was done and the price paid. But there were a few things that in hindsight we all learned could have been done better. These include:

  • While we would all agree that a “gentleman’s agreement” on certain “small things” is an honourable way to go, sometimes after the event it may not be that secure. Our advice – tie down as much as possible in a written signed agreement. This can save a good amount of heartache after the event.
  • As the seller, don’t allow the purchaser to make use of your supplier accounts, because they need time to get their own ones sorted. Best they sort this themselves.
  • If you are selling stock, tie down the valuation methods clearly and succinctly, and know how you will deal with obsolete stock. Get specific written agreement from the purchaser about that.

Finally understand that when you sell a business that has been part of your life for a long time, there will be an emotional parting from it. There will be a sense of relief but also a sense of loss. Prepare for this well and you will emerge much stronger and ready for the next challenge.