Information on business

Discussion in 'General Business Forum' started by Jane R, Apr 17, 2019 at 2:19 PM.

  1. Jane R

    Jane R UKBF Newcomer Free Member

    7 0
    Hi,
    I am looking to get some general advice regarding buying a business, The main thing i need to know is :-

    How can i find out what the value of the business is (i am currently working for the company)
    The company has been going for many years and i'm wondering if that affects the price? The building is rented and we own 3 vehicles.

    Thanks
     
    Posted: Apr 17, 2019 at 2:19 PM By: Jane R Member since: Apr 10, 2019
    #1
  2. Mark T Jones

    Mark T Jones UKBF Ace Full Member

    2,814 801
    @Clinton specialises in this field and will be glad to help.
     
    Posted: Apr 17, 2019 at 2:28 PM By: Mark T Jones Member since: Nov 4, 2015
    #2
  3. Mr D

    Mr D UKBF Legend Free Member

    13,174 1,441

    Pick a number. Any number.
    Use that.

    You can look at past few years accounts, you can go through all the figures, you can examine a load of documents. And the value is what you are willing to pay.


    Going for many years? Woolworths was too. So was toys r us. And Shell.

    What someone is selling the business for and what the business is purchased for can be quite different.
     
    Posted: Apr 17, 2019 at 2:50 PM By: Mr D Member since: Feb 12, 2017
    #3
  4. Jane R

    Jane R UKBF Newcomer Free Member

    7 0
    Hi Mark,

    I've a couple of options open to me regarding funding the purchase but i wondered if there is anyway of getting a value on the business, as i have been here for 25yrs i know the company is good but not how much its worth, i know the boss is going to want more as this is a once in a life time offer but i'd like to know how much its really worth
     
    Posted: Apr 17, 2019 at 2:52 PM By: Jane R Member since: Apr 10, 2019
    #4
  5. Mark T Jones

    Mark T Jones UKBF Ace Full Member

    2,814 801
    There is no such thing as once in a lifetime offer - it's just another business for sale.

    Never forget that!
     
    Posted: Apr 17, 2019 at 3:01 PM By: Mark T Jones Member since: Nov 4, 2015
    #5
  6. Jane R

    Jane R UKBF Newcomer Free Member

    7 0

    I get that but that's just how it feels right now, i've worked hard to in the company and now i have this offer its sometimes a bit overwhelming
     
    Posted: Apr 17, 2019 at 3:04 PM By: Jane R Member since: Apr 10, 2019
    #6
  7. Stedurham

    Stedurham UKBF Regular Free Member

    250 36
    What assets does it have is it limited, surely if you have been there 25 years theres no one better to know the valuation that yourself, not an internet forum that you have gave no details to
     
    Posted: Apr 17, 2019 at 3:15 PM By: Stedurham Member since: May 11, 2018
    #7
  8. Clinton

    Clinton UKBF Big Shot Full Member

    3,851 1,315
    People assume that there is some magical number somewhere that someone can attribute as value to a business.

    There is not.

    I've dealt with hundreds, probably thousands of cases so far and I can tell you one thing - if you can't come to your own conclusions as to what the business is worth to you ... don't buy the bloody thing!

    I've bought businesses with my own money. And lost bids on businesses I was trying to buy because someone was willing to pay a higher price. But that's fine. Did they pay more than the "right" value? No, it just happened that the value to them was more than the value to me.

    So how do you come to the conclusion as to what the business is worth to you?

    You examine the books carefully (actually you pay someone who knows what they're doing a few grand to examine stuff for you!). Then you examine other stuff (or get someone to do it for you). Then you decide the likely cash flow in the coming years. You assess the risk to that cash flow (the higher the risk the less you pay). You assess your own RoI requirement - what return you need to see on your investment.

    Then you decide what the business is worth to you.

    Who said it was going to be easy?

    If you can't do all of that, the smart thing to do is to hire someone to do it for you (at the cost of several thousand pounds). Bear in mind though that their analysis may lead to the advice that it's not a good investment in which case you'll have to walk away (and say goodbye to the fees already paid).

    No you don't. Not from an investment perspective anyway.

    You think it's a good company. It takes thorough due diligence before you can draw the conclusion that it is indeed a good company to invest in. I don't care how long you've worked there.
     
    Last edited: Apr 17, 2019 at 3:24 PM
    Posted: Apr 17, 2019 at 3:16 PM By: Clinton Member since: Jan 17, 2010
    #8
  9. Jane R

    Jane R UKBF Newcomer Free Member

    7 0
    Thank you to everyone who has commented so far, Yes i have been in the business for 25 yrs and yes i know its a profitable company and there is more potential for moving the business forward and growing the business.

    Thanks for taking the time to read my post and commenting, how about trying to be positive about the whole idea and asking the questions like is it limited etc rather than quite a blunt response.
     
    Posted: Apr 17, 2019 at 3:24 PM By: Jane R Member since: Apr 10, 2019
    #9
  10. Stedurham

    Stedurham UKBF Regular Free Member

    250 36
    Like above then if working in a company you don't know its value pay an accountancy firm to look over books etc and they will tell you
     
    Posted: Apr 17, 2019 at 3:30 PM By: Stedurham Member since: May 11, 2018
    #10
  11. Mark T Jones

    Mark T Jones UKBF Ace Full Member

    2,814 801
    You don't pay for potential - that your reward for initiative & hard work.

    YOU might pay for:

    - Fixed assets (excluding debt outstanding)
    - Recurring revenues
    - Quantifiable goodwill
    - IP
    - WIP / stock / confirmed orders

    Although all of these need to be calculated with diligence

    At this moment you are coming across a bit like someone who is desperate to be talked into a deal - not a good bargaining position!
     
    Posted: Apr 17, 2019 at 3:33 PM By: Mark T Jones Member since: Nov 4, 2015
    #11
  12. Mr D

    Mr D UKBF Legend Free Member

    13,174 1,441
    Every company that has gone up for sale has potential.

    Its like saying you need water to survive.

    What counts are what profits the business gives. Make a change maybe it increases profits maybe it doesn't - until you try you cannot know, you can make a guess, maybe even a great guess - but don't know.

    Working for a business for so many years means you know how good it is to work for. However that gives no information on whether its a good investment.
    Some of us are experienced in business for many years and still capable of running a business into the ground. For new people in business the chances of crashing in first few years can be a lot higher.

    Separate yourself from the employee. Think owner - think what bills have to be paid, look into what you don't get to see yourself as an employee.
     
    Posted: Apr 17, 2019 at 3:33 PM By: Mr D Member since: Feb 12, 2017
    #12
  13. Jane R

    Jane R UKBF Newcomer Free Member

    7 0

    Thank you
     
    Posted: Apr 17, 2019 at 3:46 PM By: Jane R Member since: Apr 10, 2019
    #13
  14. Jane R

    Jane R UKBF Newcomer Free Member

    7 0
    I don't need to be talked into it as i made the decision that it was something i an going to do a few months ago, the current owner and boss is going to retire hence why the opportunity has arose,
     
    Posted: Apr 17, 2019 at 3:48 PM By: Jane R Member since: Apr 10, 2019
    #14
  15. Clinton

    Clinton UKBF Big Shot Full Member

    3,851 1,315
    The #1 question to ask is this: "Why should I not buy this business?" Then you look for the flaws, the problems, the risks, the issues, the potential roadblocks to a deal proceeding ... all the negatives.

    Anybody who doesn't do that is, IMO, desperate to do the deal ;)

    And you come across as desperate to do the deal.

    That's not how smart buyers play the game.
     
    Posted: Apr 17, 2019 at 3:57 PM By: Clinton Member since: Jan 17, 2010
    #15
  16. Mark T Jones

    Mark T Jones UKBF Ace Full Member

    2,814 801
    Oh dear.
     
    Posted: Apr 17, 2019 at 3:57 PM By: Mark T Jones Member since: Nov 4, 2015
    #16
  17. Mr D

    Mr D UKBF Legend Free Member

    13,174 1,441
    Be suspicious of everything, verify all figures and all known changes.

    I would listen to Clinton. Up to you if you follow his advice but it tends to be worth listening to him.

    In some ways you are in a good position, you can see the ins and outs of part of the business in a way that few outsiders could do. You may well have your own ideas of ways to improve workflow, productivity, staffing etc that is specific to the business and based on knowledge an outsider would miss.

    It can also count against you - a view of the business that you can convince yourself is great even when there are cracks.
    That is the danger I suspect several of us see. We don't know there are cracks, we don't know the business has any problems at all. But we also don't know if you will be as cynical and clear headed as you will need to be to.

    Its not personal.
    Perhaps due to the nature of the forums we see some starry eyed buyers and we see people who purchased something with problems that cost them the business. Makes us a little cynical. :)
     
    Posted: Apr 17, 2019 at 4:22 PM By: Mr D Member since: Feb 12, 2017
    #17
  18. Jane R

    Jane R UKBF Newcomer Free Member

    7 0
    Thank you and thank you for actually making sense, i do have a lot of insight into the business and we have been going for 37 yrs and ive done 25 of those so i understand a lot about thsi business in general but the ownership side of things is foggy right now which is why a came on here to ask the question.

    I will speak to an accountant and take it from there, i know i can keep this business going and profitable and i get the starry eyed comment but as exciting as this is there are pit falls with everything and i'm going to try like everyone else to miss them or at least bridge them if they arise
     
    Posted: Apr 17, 2019 at 4:37 PM By: Jane R Member since: Apr 10, 2019
    #18
  19. Mr D

    Mr D UKBF Legend Free Member

    13,174 1,441
    Good luck.

    Owning a business can be annoying, long hours, tiring, steep learning curve, exhausting and exhilarating. And can be well worth doing.

    Can cause you to grow in ways they could never have imagined and teach you what you have never tried.

    A business owner can end up wearing multiple hats. And for being a baby that you can see and grow as you wish...
    Theoretically can be grown into something that lets you retire and someone else run afterwards....

    I've been an employee, I've been a business owner. Of the two the one most worth doing is business owner.
     
    Posted: Apr 17, 2019 at 5:33 PM By: Mr D Member since: Feb 12, 2017
    #19
  20. The Byre

    The Byre UKBF Ace Free Member

    8,210 3,183
    In 2000 Harman Industries bought out Amek in Manchester, a manufacturer of high-end audio equipment for recording studios. It had been going for about the same time as your current employer. They had bought out AKG in Vienna and AKG owned 30% of Amek, so Harmann sent in all sorts of MBAs and accountants and lawyers to perform proper due diligence with a view to buying the rest 70%.

    They went through everything and interview every one of the about 100 staff.

    There were two owners and a healthy seven-figure sum was offered. Flat deal. Cash. No options, no pay-off, no hand-over period. On day one, you get the money and we get the company. They took it!

    What Harmann did not know and was not documented within the company, was that all the designs were licensed to a separate company owned by one of the owners and the most lucrative designs were sub-licensed via that separate company to an old friend of the owners, a famous design engineer called Rupert Neve.

    These types of deals are very normal in those circles in the UK. Less so in the US, so the Harmann 'suites' didn't think to ask, if a mixing desk was labelled 'Rupert Neve design' what the conditions of the licensing deal were.

    The deal (and the other licensing deals) contained a clause, that if the ownership structure of the company changed, Neve had the right to give five years notice of termination. And he did.

    Harmann had spent a great deal of money, buying nothing. In 2005 they had to pull the plug.

    100 employees, good turnover, good profits, very respected brand, one of the names that producers like to see when entering a control room, one of those names that raises eyebrows, knowing that a piece of equipment cost a six-figure sum.

    Amek was a cool company with crazy rock-n-roll types working there. Hairy, scary design dudes in engineering, ex-roadies driving fork-lifts and hipsters in sales. Harmann insisted on US-style corporate structures and soon key people started leaving.

    It was a company that was developing new digital products for the new digital broadcast age, a company with a future, a profitable company at the cutting edge of technology. But it was worthless. The very act of buying it made it worthless.

    The same happened to me. I sold my news agency in Germany to a large UK publisher. They, by insisting on introducing corporate structures into a hippy-dippy loose collection of funky people. That annoyed everybody and most of the key people left.

    What's a company worth?

    The net equity. All the rest is just the icing on the cake. The rest is just whistling Dixie and holding a wet finger up to the wind.
     
    Posted: Apr 17, 2019 at 5:33 PM By: The Byre Member since: Aug 13, 2013
    #20