How do you value a business?

Discussion in 'General Business Forum' started by Mrs Malapup, Nov 25, 2009.

Thread Status:
Not open for further replies.
  1. Mrs Malapup

    Mrs Malapup Contributor

    306 3
    I am thinking of selling my pet sitting/dog walking business and wondered how to work out how much I should ask for it. Is there a formula? Thanks :)
     
    Posted: Nov 25, 2009 By: Mrs Malapup Member since: Sep 4, 2006
    #1
  2. thebigIAM

    thebigIAM Contributor

    1,087 201
    If I were buying a business the first thing I would look at is the value of its assets, then its potential for growth, then the nuts and bolts stuff like turnover and profit.

    I'm not sure how much value I would attach on goodwill with your sort of business. The customers have probably got to know you and trust would be vital for them. That's the sort of value that stays with one individual.
     
    Posted: Nov 25, 2009 By: thebigIAM Member since: Jan 11, 2009
    #2
  3. sellickbhoy

    sellickbhoy Contributor

    1,063 258
    think about what it would cost someone to start up from scratch - what do they actually need to do your job?

    a van, dog cages, some leads

    then how would they market the business - flyers, ads in local papers, setting up a web page etc

    thats how much it'll cost them to get going from nothing - so if you are transferring all that plus some goodwill, that's what you could look to start your price at.

    I think the key thing for you will be how to transfer the goodwill.

    You could well get more money for your business by having an extended hand over period - i.e. sell the business and for all intents and purposes you remain as the front man for 2/3 months

    over that time, you introduce your client base to your new "helper" as time passes they do more and more themselves

    you can then tell your clients you are taking some time off and your helper will continue

    then eventually announce you are severing all ties

    that would help give any buyer a running business, some confidence and help keep the customer base - and help secure yo more money

    of course, if the buyer isn't liked by your clients then there is not much more you can do. they will stay loyal while they think you are involved but if they don't like them and leave - thats down to them

    i would say it's probably a hard business to get a decent fee for though as the cost of entry is actually quite low.

    you may be better off just getting someone to run it for you and taking any profit.
     
    Posted: Nov 25, 2009 By: sellickbhoy Member since: Jun 5, 2009
    #3
  4. jasonnoguchi

    jasonnoguchi Contributor

    265 23
    There really isn't a hardcore formula for common small businesses but one way of doing it is valuing by investment value. If your business is generating a net profit of about $50,000 a year, then it will be worth an investment value of $1,000,000 at 5% annual ROI. So any investors looking to invest in your business with at least 5% ROI, they need to pay $1,000,000 for your business.
     
    Posted: Nov 26, 2009 By: jasonnoguchi Member since: Sep 25, 2009
    #4
  5. vvaannmmaann

    vvaannmmaann Contributor

    13,109 3,369
    My usual answer to this.It's only worth what someone will pay for it.
    No use to you,but a good yardstick I think.All the spreadsheets,books,valuation of assets etc means nothing if you get no buyer.
    If all else fails,think of a number and get it on Ebay.
     
    Posted: Nov 26, 2009 By: vvaannmmaann Member since: Nov 6, 2007
    #5
  6. vvaannmmaann

    vvaannmmaann Contributor

    13,109 3,369
    Meanwhile,back in the real world.:)
     
    Posted: Nov 26, 2009 By: vvaannmmaann Member since: Nov 6, 2007
    #6
  7. LicensedToTrade

    LicensedToTrade Contributor

    6,315 2,138
    I wouldn't try and factor in growth in this case, unless you have accounts that clearly show a constant and stable growth year on year for at least 5 years, you will struggle to convince potential buyers that you aren't pulling the wool over their eyes. Focus on ROACE and ROI. How much profit does it make a year? How long until the buyer will make their money back? What do the assets amount to (factoring in depreciation on any equipment you have).

    What would you be prepared to pay for this business?
     
    Posted: Nov 26, 2009 By: LicensedToTrade Member since: Nov 7, 2009
    #7
  8. Philip Hoyle

    Philip Hoyle Contributor

    2,255 1,094
    The buyer shouldn't forget to value the proprietors time in running the business. They need to knock off such "wages" from the net profits before applying any formula. If it makes £10k profit for full time hours, then it's worth nothing as you could earn £10k in a full time job in a supermarket. There's no point in "buying" a job! Of course, if a buyer wants a "lifestyle" business rather than a job then they may well be prepared to pay for it.
     
    Posted: Nov 26, 2009 By: Philip Hoyle Member since: Apr 3, 2007
    #8
  9. Mrs Malapup

    Mrs Malapup Contributor

    306 3
    Thanks everyone :)
     
    Posted: Nov 26, 2009 By: Mrs Malapup Member since: Sep 4, 2006
    #9
  10. Acorn BusinessPerformance

    Acorn BusinessPerformance UKBF Newcomer

    55 8
    7 x Annual Turnover = Value

    Give or take a whole host of factors

    Alex
    Acorn Business Performance
     
    Posted: Nov 26, 2009 By: Acorn BusinessPerformance Member since: Nov 22, 2009
    #10
  11. Grollsta

    Grollsta Contributor

    232 12
    hard fact is its worht what someone will pay for it as someone said already.

    One needs to remember there are different types of buyers out there.

    - investors
    - business owners
    - self employed people wanting a new job.

    investors don't generally work in a business. Business owners dont spend 100% of their time in the business, their staff do. Self employed people will spend 100% of their time in the business.

    consider:

    What kind of buyer do you want?
    How would this person value the business?
    Can you substantiate the amount asked for with value being offered?
    Do you have contracts in place with your customers/clients?
    Is the business well systemized?

    The more business like your business is, the more attractive a value proposition it becomes to the potential buyer.
     
    Posted: Nov 26, 2009 By: Grollsta Member since: Jul 19, 2007
    #11
  12. LicensedToTrade

    LicensedToTrade Contributor

    6,315 2,138
    I've never understood revenue based valuations of worth. One company that turns over 1000 a year at 10% margin by your formula would be worth 7000 despite only making 100 profit. Another company that turns over 500 a year at 50% would be worth 3500 despite making 250 profit. So if you rely on turnover it isn't very accurate.
     
    Posted: Nov 26, 2009 By: LicensedToTrade Member since: Nov 7, 2009
    #12
Thread Status:
Not open for further replies.