how to value your own business

[buddyric]

My accountant has given me this figure for the sale of my internet business £100,000 I havent been exctly totallyimpressed with him over the last year, but will go with him as he has all the historical information to hand to handle the sale for me.

I just do not feel the valuation is high enough, i am going to carry out the sale on a private basis with no broker involved.

My figure is around the £ 150,000 to 175,000 mark

I appreciate that there all sorts of multiples and ratios to value a company and have used a combination of all to reach my value.

My figures are as follows sales 720,000
cost of sales 580,000
140,000
expenses 50,000
profit 90,000
tax on profit 19,000
profit 21,000

My real problem is to find the multiple used for selling a internet based business,

If any one can point me in the right direction to obtain this i would be gratefull, and also is my accountant selling me short.

 

[Pish_Pash]

Are those numbers for one year? (almost three quarters of a million quid turnover, yet just £21k net profit?!)

If someone pays £175,000 for your business, then wouldn't they then have to turnover £6M over 8.3 years just to get their original investment back?

 

[buddyric]

hi they are for a full year, i have taken the lowest wage possible and £40,000 in divedends

 

[UK Contractor Accountant]

if the opertaing profit is £90K and tax £19K how do you get to £21K profit for the year???

Business valuation is a specialsed area and I would advise you to get a valuation report completed by a proper buisness valuer.

There are various methods used to value a company which I have covered in a previous post. Yes the earning based valuation is based on a multiple of profits but there are many other factors to consider.

You would also be advised to enage a solicitior to handle the sale contract.

 

[David Griffiths]

There seems to be a discrepancy in numbers. This is all guesswork, but it seems to me that the profit is £90k (after taking a minimal salary). Tax of £19k and dividends of £40k would leave retained profits of £31k - that's £10k out from the figure stated.

In terms of valuation, much would depend on the track record, as evidence of future sustainability of the income and profit. You'd normally be looking over a three year period at least.

You'd also need to adjust the profits to allow for a reasonable wage for someone to run the site. If you put in £40k for doing that the net profit comes down to £50k, and the value might be on a multiplier of 2 or 3 times that. It all comes down to facts - if you've cashed in on a short term fad, that will reduce the chance of future profit and bring the value down considerably.

Get a specialist in internet businesses to look at it.

 

[Philip Hoyle]

An accountant's "valuation" is only part of it.

You should be getting your business evaluated by business sales agents, though be careful as some of the national/larger firms give unrealistically high valuations just to get you to sign up with them and pay advance fees to them (not repayable).

Remember that smaller, owner run businesses are notoriously difficult to value and it really comes down to whatever the buyer is willing/able to pay.

Those who glibly "value" a business at, say, 3 times net profit aren't really helpful - that kind of thing is just another of the various methods of valuing and the professional valuers tend to use several different methods, taking a weighted average of the various figures to arrive at a "middle of the road" figure which can be widely higher or lower than the simplistic 3 times net profit model.

Another aspect is whether you're proposing to sell the business (assets & goodwill etc) or whether you're wanting to sell the company shares - that distinction can cause massive differences in what a buyer is willing to pay in either scenario.