Valuation - What's it worth...?

[Lucan Unlordly]

Bespoke software serving single niche market with some IP rights. (Possible expansion into other niches with some adaptation, marketing etc.,)
99% of all possible customers subscribing for many years making it virtually impossible for any *competitor to gain a foothold.
*the obvious one with significant backing has tried several times.
Turnover £70k
Base costs, hosting etc., £1500pa Additional costs, security/server upgrades, £1000pa
Run from home. Time spent answering calls emails etc., 10-20 hours a month but quick response often required.

* obvious competitor could add 30% to cost immediately. What would you sell it to them for?

 

[nelioneil]

What is the expense in terms of wages and salaries? A buyer would almost certainly want to add their own team and this can reduce the current profits.

 

[james_77]

What we dont now from your details is the decline rate on your free cash flow. Would this still be providing near 70k in 5 years time? You could look at the 'discount cash flow' method for this type of investment. However I suspect that to most investors who do not develop this business further the FCF is going to decline over that time period. Its not clear what the risk would be to competition or other events.
You should try a DCF calculation, but be really honest on the subsequent years of the business, at what point does the revenue seriously decline. Then factor in what the risks are along the way to the FCF.
My gut feeling is under 2x FCF if it averages 50pa over 5 years and then wound down. 70,60,50,40,30.
I am assuming the FCF declines because you want to sell the business. Obviously if the FCF/Earnings is growing then the multiple will be much higher.
Add on some forecasts to your question and address the 'terminal value' after reading about DCF, you might get a much better answer.

 

[The Byre]

Everything depends on the market segment and to whom you might sell this thing to and if this software has a symbiotic relationship with the purchaser's existing business. Audio SW written in C++ is worth nothing to a pharmaceutical company!

 

[Clinton]

Possible expansion into other niches with some adaptation, marketing etc.,

Irrelevant.

* obvious competitor could add 30% to cost immediately.

Irrelevant.

What can be done, what may be done, what is possible in the future is not what the buyer is paying you for. It is always the case that vendors drone on about potential. What the buyer hears is that you want to be paid now for the possible future improvements he makes to the business.

Potential is a four letter word.

The "quick response" requirement is a bummer. It suggests that someone needs to be available during working hours every day (or maybe 24x7) to deal with the quick response demands.

You've not mentioned labour cost. What would it cost someone to put in employees to cover the work required? No, not best case scenarios of a BPO deal using outsourced staff in the Philippines or Fiverr, but actually cost of employing someone here to do the work.

Take that figure and substract it together with other costs. What's left is the net profit a buyer would see.

It's too small a profit for any serious investor to get involved. It's miniscule and therefore not worthy of getting professional assistance to do due diligence etc (which could cost £20K or £30K in itself). So you're not generally looking at serious investors.

Your target buyer is an amateur who doesn't know what he's doing and who's willing to jump in without professional assistance. What can you get him to pay? How long is a piece of string? You could get lucky and find someone who's just inherited a million, and is totally clueless about business, willing to pay you 3x that net profit.

Have you tried approaching that competitor you speak about? What did they say?

 

[The Byre]

Irrelevant.

Correct.

Irrelevant.

Correct.

Potential is a four letter word.

Potentially wrong this time!

Normally the magic word 'potential' just means 'neglected' but in the world of software, it can mean a fortune in the right circumstances. That's why I said that everything depends on the market segment and if the software has a symbiotic relationship with the purchaser's existing business.

I mentioned audio software, so I'll stick with that and bring into the light a couple of one-man-band companies that genuinely do or did have potential. I'll start with Cool Edit, sold to Adobe who were desperate to get some audio package to go with their video 'Premier Pro' and 'After-Effects'. They renamed it 'Adobe Audition' and 25 years after they bought it, it remains one of their core packages within 'Creative Suite'.

Then there is Melodyne, created by three Munich maths professors who understood Fourier Transforms better than their peers and used that knowledge to write a programme that can single out individual notes within a chord and change the pitch of that one note, thereby creating different harmonies. It is transformational software for the music industry!

But the daddy of audio SW that had potential is Reaper, written by a guy that Time magazine called "The World's most dangerous nerd!" In 1999 Justin Frankel, aged just 20, sold his three-man company 'Nullsoft' to AOL for $400m because it had the little shareware audio package Winamp.

Then Frankel tried Avid's ProTools and hated it, so he went on to write his own multitrack programme Reaper - and it does everything (and everything ProTools and almost all the other audio programmes cannot do) and is close to being able to do what Melodyne can do. It can also edit video, write a score, manipulate MIDI data and comes with 500 plug-in effects. It is today the most popular audio package.

In the world of software, there are countless tiny companies that the big boys would love to buy but cannot. For them, it is like having a stone in your shoe that you cannot get rid of.

For AOL, Winamp was the potential to gain access to millions and millions of Winamp users. For the film industry financial software company 'Caste & Crew', buying the two-man company that wrote the script software 'Final Draft' meant having the potential to gain access to EVERY film set and TV studio - if you write a script, you can either submit it in Final Draft or you can keep it to yourself!

So, yes! Car workshops, corner shops, cake makers and all the other micro-businesses that claim to have potential when what they really mean is "We can't scale this turkey up and we don't know how to!" is hardly a positive - but in the world of software, some niches mean access to customers we do not yet have!

 

[james_77]

This is a run from home business for somebody who works for themselves. Its not going to be subcontracted to the Philippines. It may be too small for Clinton to earn 30k on the DD, and hardly surprising given the starting point is a public post on a bulletin board, but I still think if the earnings averages 50k for 5 years, it would be a good add on for a self employed person, however since the OP wants to sell this business the future prospects are unlikely to be great IMO, although keeping an open mind, sometimes bargains come up due to life circumstances.

Your target buyer may well know what he is doing, and be quite comfortable buying a clearly defined business that generates a cashflow. Without details as to the defensive moat you enterprise has, and what if any skills are required to run it, its impossible to say who it would appeal to, but lifestyle wise it would work for me and countless others in my experience. The risk of preserving the earnings are the issue, which I guess is why Clinton says you need somebody clueless, but the other side of that is that the seller can demonstrate the earnings potential going forward - contracts, recurring subscriptions for SaaS. I run a business in the software sector, and I would place no value on any IP (due to how fast things change), just the earning potential of what you already have - DCF.

 

[The Byre]

I run a business in the software sector, and I would place no value on any IP (due to how fast things change), just the earning potential of what you already have - DCF.

In software, you are always running to stand still! All the companies and SW packages I mentioned have to develop or die (e.g. AOL and Winamp). That means it can only be really sold to another SW company with the know-how to develop the product.

 

[Clinton]

Normally the magic word 'potential' just means 'neglected' but in the world of software, it can mean a fortune in the right circumstances. That's why I said that everything depends on the market segment and if the software has a symbiotic relationship with the purchaser's existing business.

Again, it's a matter of size.

I've owned software businesses. I'm not a programmer so prior to buying a business where the main value is in the software, I'd want to get a technology due diligence review to check the quality of the code, the markup, the robustness, the security of the code etc. I'd also want an opinion on its scalability. All of that costs money. The game's not worth the candle for the very small deals.

It may be too small for Clinton to earn 30k on the DD

I don't do DD but my clients are subject to DD and the larger ones even go for the option of vendor DD (I just had a £40m t/o client quoted £100K+ by Grant Thornton for vendor DD). If the business is small enough, and the buyer understands the sector and understands business really well, he'll probably do the DD himself. But hiring external assistance for DD is very expensive. Maybe not £30K for a small deal but you're still talking serious money.

... the seller can demonstrate the earnings potential going forward - contracts, recurring subscriptions for SaaS.

It's still not about "potential", it's about projections. And we know what projections are like - the typical projection chart follows what's known in the industry as the hockey stick pattern. Every small business projection has the business bumping along a plateau in past years with the turnover and profit projected to immediately increase dramatically post sale. ?

Any sensible buyer would want the seller to put his neck on the line (deferred payments / earn outs) such that the seller's payout is contingent on the business delivering to those projections.

 

[The Byre]

Again, it's a matter of size.

You are of course right - all those companies I mentioned were earning millions before they were sold.

And if a buyer of the OP's SW company wants to play the run-to-stand-still game, they will have to employ a SW engineer and will cost more than the net profit. And if they do not play that game, then we are lucky if we get one year's turnover.

 

[Lucan Unlordly]

Thanks all...
Let me try and re-phrase my opening post and answer some of the comments already made without giving the game away.

First off let me address the status of what we offer, albeit in a very much smaller marketplace. KFC, McDonalds, M&S, Hoover, Ebay, Facebook, Coca Cola, Twitter......and us! Talk fried chicken, burgers, social media etc., and the above immediately come to mind. Talk about what our product does and we are not only first off of peoples lips, but the only viable option. We have the market, and just as anybody can flip a burger, open a takeaway, they cannot go national straight away without heavy investment and a huge element of risk, crossing their fingers that KFC & McD's customers will all switch brands.

Everything depends on the market segment and to whom you might sell this thing to and if this software has a symbiotic relationship with the purchaser's existing business.

It has a very symbiotic relationship with 2 maybe 3 prospective purchasers, with one way ahead in terms of needs and subsequent benefits.

Irrelevant.

What can be done, what may be done, what is possible in the future is not what the buyer is paying you for.

On this occasion I have to disagree Clinton. See above. The opportunities that become available by having complete market dominance are not obvious to those prospective purchasers. They simply do not know the market like I do.

The "quick response" requirement is a bummer. It suggests that someone needs to be available during working hours every day (or maybe 24x7) to deal with the quick response demands.

I may have overegged the pie a little there. It's been my choice to answer the phone between main course and dessert, to respond to emails at 11.30pm on a Sunday. The by product as you rightly identify is that it makes it difficult for others to offer the same. It's not a deal breaker.

Your target buyer is an amateur who doesn't know what he's doing and who's willing to jump in without professional assistance.

I wouldn't sell to somebody who didn't know what they are doing.

 

[Lucan Unlordly]

This is a run from home business for somebody who works for themselves. Its not going to be subcontracted to the Philippines. It may be too small for Clinton to earn 30k on the DD, and hardly surprising given the starting point is a public post on a bulletin board, but I still think if the earnings averages 50k for 5 years, it would be a good add on for a self employed person, however since the OP wants to sell this business the future prospects are unlikely to be great IMO, although keeping an open mind, sometimes bargains come up due to life circumstances.

Your target buyer may well know what he is doing, and be quite comfortable buying a clearly defined business that generates a cashflow. Without details as to the defensive moat you enterprise has, and what if any skills are required to run it, its impossible to say who it would appeal to, but lifestyle wise it would work for me and countless others in my experience. The risk of preserving the earnings are the issue, which I guess is why Clinton says you need somebody clueless, but the other side of that is that the seller can demonstrate the earnings potential going forward - contracts, recurring subscriptions for SaaS. I run a business in the software sector, and I would place no value on any IP (due to how fast things change), just the earning potential of what you already have - DCF.

Not a bad summary considering the lack of in depth information to go on.

I'm not actually looking to sell at this point in time but having had news of 4 sudden deaths, friends of friends, neighbours etc., and a couple of folk with terminal diagnosis, It's a question I've been meaning to ask on here for a long time. PS: Happy New Year?

 

[The Byre]

How big is the market in the UK, the EU, the US and/or worldwide?

Is the market physical or is it for SW stuff only?

What would it take for a mega-corporation to throw a ton of $ at this segment and squash it flat?

 

[Lucan Unlordly]

How big is the market in the UK, the EU, the US and/or worldwide?

Is the market physical or is it for SW stuff only?

What would it take for a mega-corporation to throw a ton of $ at this segment and squash it flat?

I'm struggling to think of an analogy to better explain what we do. Let me try.....
Think of a pop groups UK fan page that has been built from scratch by a loyal follower, has the support of the band and has 100,000 paying subscribers who gain certain benefits from being members. It's contribution to the bands profile is huge and their management company have been unable to compete. If they try again to go it alone can they guarantee the fans will follow to pastures new?

Now that's not a great analogy but size of UK market, pretty much tied up, Europe, US and worldwide with some adaptation but heavily reliant on local relationships thet we don't have.


Essentially it's a set of filters that extract information relevant to a specific part of a specific market that could be adapted for others operating in the same or similar sectors. Anyone could, in theory, create something similar. Many have tried and failed. A mega corporation would have to create something that better serves the needs of users, (they can't) instruct them on how to get that information, (it's taken me 20 years lol) have everybody take up the system at the same time and do it all overnight.

 

[Clinton]

On this occasion I have to disagree Clinton.

You can disagree all you want but your trouble will be finding a buyer who shares your view rather than mine.

I may have overegged the pie a little there. It's been my choice to answer the phone between main course and dessert, to respond to emails at 11.30pm on a Sunday.

Your current turnover and profit is a product of everything including your quick response times and availability at 11.30 pm on a Sunday night. No buyer is going to assume that the t/o, profit and loyalty of customers will continue even when that support is scaled back to a 9-5, M-F.

The kind of defences you produce are typical of what I see coming from shareholders of the smaller businesses and I don't want to keep banging on about the realities. I do wish you well. Try the market out and come back and tell us what kind of response you got

 

[Lucan Unlordly]

You can disagree all you want but your trouble will be finding a buyer who shares your view rather than mine.

I wouldn't challenge your comments if I didn't already know who the logical buyer/s are and what they need. They have already tried to create secondary revenue streams and failed. We are talking about a management team that has insufficient knowledge of marketplace and people within. Yes they will need the opportunities presented to them but they are self selling no brainers. I don't see that as without value.

Your current turnover and profit is a product of everything including your quick response times and availability at 11.30 pm on a Sunday night. No buyer is going to assume that the t/o, profit and loyalty of customers will continue even when that support is scaled back to a 9-5, M-F.

The customers have nowhere else to go.

 

[KeithGreen]

If you want an opinion of value I'm happy to try and help. Please PM me or contact me direct.

 

[Lucan Unlordly]

If you want an opinion of value I'm happy to try and help. Please PM me or contact me direct.

Thanks Keith, but I've come to the conclusion that what we have to offer is somewhat unique and almost certainly won't follow traditional ways of assessing the true value.

One day I'll fill in the blanks.......

 

[NickGrogan]

Ignoring the turnover and current costs, what would it cost to create the software from scratch?

Once you've got the software, what would the cost of marketing be to achieve a significant market share?

If they created the software and then gave away the subscription, what would that actually cost?

This might be the value of the business.

 

[Lucan Unlordly]

Ignoring the turnover and current costs, what would it cost to create the software from scratch?

Once you've got the software, what would the cost of marketing be to achieve a significant market share?

If they created the software and then gave away the subscription, what would that actually cost?

This might be the value of the business.

If I put myself in the shoes of the most likely purchaser who were at one time paying £40k a year for a website with hosting that done nothing and who's CEO once told me that you don't get much of a website for less than £120k I can only hazard a guess at £50k. Think taxpayers money

Market share isn't an option. It's all or nothing. Sorry to talk in riddles but if you created a website that claimed to list every major supermarkets prices, but hadn't got Sainsbury's and Morrisons on board it wouldn't work. However, lets assume they had a bottomless pit of money and are happy to play the long game. They'd have to better what we do and that will be difficult to say the least.

Free subscription is an option that would, in my opinion, bring untold issues with access and security.

 

[NickGrogan]

If I put myself in the shoes of the most likely purchaser who were at one time paying £40k a year for a website with hosting that done nothing and who's CEO once told me that you don't get much of a website for less than £120k I can only hazard a guess at £50k. Think taxpayers money

Market share isn't an option. It's all or nothing. Sorry to talk in riddles but if you created a website that claimed to list every major supermarkets prices, but hadn't got Sainsbury's and Morrisons on board it wouldn't work. However, lets assume they had a bottomless pit of money and are happy to play the long game. They'd have to better what we do and that will be difficult to say the least.

Free subscription is an option that would, in my opinion, bring untold issues with access and security.

Stick a zero on the end of the turnover and offer it to them for that.

Give them a limited license on the IP separately and then sell them that in the future for a similar large figure (I seem to remember @The Byre talking about something similar in the music/audio tech industry?)

 

[SillyBill]

I'm not getting this, I created a new business in 2020 and hit this turnover inside about 4 months. Not immediately understanding the value based on the significant hours put in by the owner; you will be x2-x3 more productive than a employed staff person could expect to be so that'd be thrown into my calculations. You are selling the potential very well indeed, so possibly we are missing something critical that you can't disclose that would make these numbers make sense. I'd have thought if it was as potentially lucrative as alluded to (as in you hold the key that allows their established brand/company to start printing money), one of these mega brands would have made you a millionaire already and you wouldn't be posting here therefore. Big companies don't tend to mess about when they see a great prospect IME, and would've thought a number to turn your head would still be chicken feed for them. So why has it not happened already is the question, how many offers have you turned down, batted away? Out of interest what are you expecting, guessing it is a lot or you wouldn't be looking for a sounding board, 6+ x turnover?

 

[Lucan Unlordly]

You are selling the potential very well indeed, so possibly we are missing something critical that you can't disclose that would make these numbers make sense.

Spot on In a roundabout sort of way, it works rather like the introduction of National Lottery terminals into corner shops when it launched all those years ago. On one hand they were just functional machines. In reality they were much sought after to increase footfall.

one of these mega brands would have made you a millionaire already and you wouldn't be posting here therefore. Big companies don't tend to mess about when they see a great prospect IME, and would've thought a number to turn your head would still be chicken feed for them.

The critical link would see the big brands come running but only for third party involvement alongside the number one potential purchaser. The groundwork has been done but as Clinton alluded to in an earlier post, opportunity without solid numbers may have little influence over the value of what's for sale today.

 

[Clinton]

...as Clinton alluded to in an earlier post, opportunity without solid numbers may have little influence over the value of what's for sale today.

There is one exception - where you are putting your neck on the line ie where you're guaranteeing future delivery of profit (such as via an earn out).

Owners who are confident their projections are not pie-in-the-sky (and not reliant on the buyer's input - whether time, money, staff, other resources), can demand a higher figure and make that contingent on the business delivering to projections.

If I put myself in the shoes of the most likely purchaser who were at one time paying £40k a year for a website with hosting that done nothing and who's CEO once told me that you don't get much of a website for less than £120k I can only hazard a guess at £50k. Think taxpayers money

I've spoken with thousands of sellers in my time and I hear this argument often. It essentially boils down to this: "They paid silly money for other stuff so they are muppets who will overpay and don't know the value of things". Not exactly, but that's kinda the underlying sentiment.

In real life it doesn't work like that. Boards look at covering their asses. Sometimes they have adequate cover for throwing large sums at certain projects, and they can take a risk on those, but that doesn't mean they can see enough cover / justification to throw a relatively small amount at a different project.

But, the proof of the pudding and all that. You've challenged my comments because you say you know the buyers and know what they need. I would be delighted if you got back at some point to tell us that I was wrong and that you successfully sold at even some £200K or £300K type of figure (which seems to be where your expectations are. Unless they are higher!)

 

[The Byre]

Everyone (inc. myself) has missed the one very obvious point - this is a junior goldmine.

I invest in these animals and one judges the discounted value of an undeveloped mine by the size of the proven assets minus the cost of extraction and all other costs. A gold mine has one asset and one asset only - the gold in the ground. When that asset is exhausted, the mine is totally worthless. Indeed, it is a liability as there will be clean-up and other costs after full extraction.

In other words, a physical goldmine is not a metaphoric goldmine!

A goldmine has just one asset - gold. You have just one asset in this company - software. If/when that is exhausted, it is worthless.

Now that's not a great analogy but size of UK market, pretty much tied up, Europe, US and worldwide with some adaptation but heavily reliant on local relationships thet we don't have.

I am not too sure how to read that - but it seems to say that you do not have access to the EU and US markets and that someone else is playing in those sandboxes. If that is true, then this mine is subject to Brent Johnson's milkshake theory.

In the movie "There will be Blood" our main protagonist, Daniel Plainview (played by the brilliant Daniel Day-Lewis) is offered his neighbour's land because there is oil under that land. Plainview says "If you have a milkshake and I want that milkshake, I don't need to buy it. I just need a longer straw!"

If there are similar packages in the EU and the US, what is to stop them from using a longer straw?

 

[Lucan Unlordly]

I would be delighted if you got back at some point to tell us that I was wrong and that you successfully sold at even some £200K or £300K type of figure (which seems to be where your expectations are. Unless they are higher!)

I think I'd be foolish to accept an offer of £200k, unless I needed that money to invest elsewhere.

A goldmine has just one asset - gold. You have just one asset in this company - software. If/when that is exhausted, it is worthless.

Not so. My gold is having close on 100% of all the extremely loyal customers. Twitter was/is nothing more than a way to impart a message. The clever bit was limiting the number of characters. Our software is little more than a communication tool from which our customers gather information. The clever bit is that it works how they think 'sends Christmas Cards rather than Emails' to customers for whom learning other ways is something they don't want to do.

I am not too sure how to read that - but it seems to say that you do not have access to the EU and US markets and that someone else is playing in those sandboxes. If that is true, then this mine is subject to Brent Johnson's milkshake theory.

See above. An understanding of each countries way of working is essential to any success. I've had enquiries from the US, France, Denmark, New Zealand, Poland. Mainly from former customers who've relocated and found the local offerings inferior. Like many they confuse simplicity of functionality with the complexity of the whole.

 

[Clinton]

I think I'd be foolish to accept an offer of £200k, unless I needed that money to invest elsewhere.

You're expecting more than £200K!? Really? Yikes!

What's being foolish is holding on to this ridiculous notion that your business is something special, breaks all the moulds and needs to be valued differently to any other business in the market.

If it doesn't have the 2nd tier management, it's highly dependent on one person etc it'll still be seen by investors as a piece of crap. And, no, they are not being foolish, despite what you think.

This thread is getting stupid now.

You started this conversation trying to get an idea of value. People with a lot of experience have told you what they think. But you keep stubbornly refusing to accept reality.

Stop telling us how frigging fantastic your business is and go and sell the bloody thing (or come back in some months and save face by telling us the usual story people say when they can't find an idiot to pay them an unrealistic price: "It's such a fantastic business that I decided to keep it for myself")!

But if you sell your business in the next 6 months, and get £200K or more on the day of sale, I'll donate £1,000 to a charity of your choice.

In the meanwhile, and for now, I'm out of this stupid thread that's going nowhere except for the OP to keep telling us how fantastic and unique his business is and trying to justify someone, anyone, coming up with a seven figure valuation for him.

 

[OMGVape]

virtually impossible for any *competitor to gain a foothold

So why the secrecy? What’s the problem with you explaining exactly what the business does?

 

[Lucan Unlordly]

Deleted

 

[Lucan Unlordly]

What's being foolish is holding on to this ridiculous notion that your business is something special, breaks all the moulds and needs to be valued differently to any other business in the market.

Then name me one business that has 99-100% of all available customers, where multiple no limits attempts to replicate it have failed and that has guaranteed, proven opportunity written all over it. The bottom line is you are trying to assess something with zero understanding of where we sit in the marketplace and zero understanding of that marketplace, which I understand because I will not lay every card on the table.

Stop telling us how frigging fantastic your business is and go and sell the bloody thing (or come back in some months and save face by telling us the usual story people say when they can't find an idiot to pay them an unrealistic price: "It's such a fantastic business that I decided to keep it for myself")!

Stop making things up. I've said that we have a strong, loyal customer base that has proven to be defensible against outside interest. You don't think that has a value, I know that to the right buyer, it does.

 

[The Byre]

If there are similar packages in the EU and the US, what is to stop them from using a longer straw?

And the answer is . . . ?

 

[Lucan Unlordly]

So why the secrecy? What’s the problem with you explaining exactly what the business does?

Because I'm smart enough to understand that the potential purchaser/s could be viewing this thread.

The business is simple but much of the potential value is additional to that already outlined.

Over 15,000 bona fide enquiries have been forwarded to our customers. If a rolling 10% of those committed to using our customers services the absolute minimum annual benefit to the industry/them would be in excess of a million. The conversion figures are actually higher than that but not equally balanced. Our income from this service - zero, apart from that is, rock solid customer loyalty.

 

[Lucan Unlordly]

And the answer is . . . ?

A long straw and plenty of patience would be needed and nobody that i'm aware of has followed our route.
It's taken over 20 years for us to get where we are today. When I started this - for my sole benefit with no plans to moneytize - most of our now customers, in fact most of the world didn't have PC's, let alone phones.

 

[BusterBloodvessel]

Just because potential purchasers might be viewing this thread, why does that stop you explaining what the business does? If you pitch to a new potential customer, surely you tell THEM what the business does? Do you not have a website that says what you do?

I'm absolutely baffled at the secrecy. It's a bit daft to ask for an opinion when it's impossible for people to formulate one without the full facts.

 

[Lucan Unlordly]

Just because potential purchasers might be viewing this thread, why does that stop you explaining what the business does? If you pitch to a new potential customer, surely you tell THEM what the business does? Do you not have a website that says what you do?

I'm absolutely baffled at the secrecy. It's a bit daft to ask for an opinion when it's impossible for people to formulate one without the full facts.

The website is password protected. Any discussions had with interested parties require a non disclosure agreement.

Yes, agreed, this is a learning curve for me. I had my hopes pinned on some broad based guidance as to the value of opportunities and the strength of our position in the market. I don't think it's necessary to know what that market is and as we sit somewhere between the government purse and commercial interest It's a little outside the norm. and would require even further explanation.

 

[MBE2017]

Simple fact, as it is often said, it’s worth what someone will pay for it. I doubt that coincides with what you feel it is worth, so you are unlikely to sell.

 

[PugwashEQ]

HI Lucan,

Unfortunately, questions of business valuations often seem to create really negative responses on this board, I'm not sure why.

MBE's most recent post is absolutely correct- its worth what someone is willing to pay for it. As examples, in the past 3 months we've represented a client with a £2m EBITDA and 30% y-o-y growth that nobody was willing to buy at any price and a client with a sub £1m revenue who completed a transaction at well over a 35times multiple of revenue.

High valuations are driven by scarcity value- ie what can an acquirer gain by buying you that they just can't get any other way, and what is that value worth to them. Your description suggests that you have something with genuine scarcity, but it is too hard to tell from your description how that scarcity turns into actual revenue, and whether the future security is sustainable.

If the business isn't scalable significantly beyond £70k then you either have a lifestyle business for sale OR its a bolt-on that someone else has to be able to seamlessly manage (which means you need to get the businesses internal processes setup and working....)

TBH at the level of turnover you currently have you are going to find it very hard to generate a sale in any meaningful timeframe-you should either approach the obvious buyer with a sale proposal OR why not consider licensing it to them?

 

[NickGrogan]

Then name me one business that has 99-100% of all available customers, where multiple no limits attempts to replicate it have failed and that has guaranteed, proven opportunity written all over it. The bottom line is you are trying to assess something with zero understanding of where we sit in the marketplace and zero understanding of that marketplace, which I understand because I will not lay every card on the table.

Stop making things up. I've said that we have a strong, loyal customer base that has proven to be defensible against outside interest. You don't think that has a value, I know that to the right buyer, it does.

Assuming this is correct, why not just raise your rates?

You have 100% market share, no competition and you're generating millions for your clients.

Double your fees, costs remain the same and the valuation will sky rocket.

 

[The Byre]

HI Lucan,

Unfortunately, questions of business valuations often seem to create really negative responses on this board, I'm not sure why.

Because of unrealistic expectations of great wealth. Anyone who has been party to attempted company sales at any level soon discovers a multitude of false expectations and this happens at every level from the multinational takeover (TBH, I have never been anywhere near one of those!) to the sale of what in reality is just a job.

Because I am bilingual and used to work in engineering and trade circles, I was often asked to accompany US and UK companies trying to buy German companies, and/or translate the documentation about such sales.

High valuations are driven by scarcity value- ie what can an acquirer gain by buying you that they just can't get any other way, and what is that value worth to them.

Bingo!

I have seen a factory that no sane person would buy in a million years be sold for a serious sum, simply because they had one solitary patent for a submersible frictionless bearing that would give any manufacturer of submersible motors a huge advantage. A bidding war broke out and a US international won the bidding with a substantial seven-figure offer.

Anyone who saw this factory would find the offer absurd unless they understood the importance of that patent for that market. The place was a mess, there were H&S violations everywhere you looked and as far as profits go, they went a long time ago!

But the company had that patent - and if the competition got their dirty hands on that patent and were able to develop it and extend that patent, it would have been a major disaster!

Your description suggests that you have something with genuine scarcity, but it is too hard to tell from your description how that scarcity turns into actual revenue, and whether the future security is sustainable.

Scarcity alone is never enough. There must be real value as well. A small plot of land in Dresden, enough for one solitary house, is not scarce, but it sold for €1m as it was slap-bang in the middle of a proposed city development.

If the business isn't scalable significantly beyond £70k then you either have a lifestyle business for sale OR its a bolt-on that someone else has to be able to seamlessly manage (which means you need to get the businesses internal processes setup and working....)

The two owners of a German trade magazine run from their homes and with a turnover of about DM150,000 p.a. thought that they could sell to a UK publishing house - but they were the only full-time staff - one bloke on sales and one on editorial, plus a few freelance writers.

"We buy it and then we have to find offices and two full-time staff - and one of our English mags get more turnover from the German market than they do - and all for a lousy £60k turnover! It ain't worth the candle!" is what the publisher said when we put the facts before him. (And that was in the 90s when £60k was the average price of a decent house!)

TBH at the level of turnover you currently have you are going to find it very hard to generate a sale in any meaningful timeframe-you should either approach the obvious buyer with a sale proposal OR why not consider licensing it to them?

See the example of the trade magazine - a turnover of £70,000 is not going to get anybody's juices flowing! The 'Sturm und Drang' of integrating a small and local gateway function into a larger corporate machine is unlikely to be able to generate any meaningful additional profit. You employ just one solitary person extra and all hope of profit is gone.

Sadly, today the fixed costs of any business function are so bloody high that it takes stupid sums just to keep the old nostrils above the waterline! Offices, water and wastewater, bin collection, holiday arrangements, pensions, annual accounts, MTD, VAT, parking, council taxes and rates, heating and electricity - it just goes on and on! Setting something up that is local for £70,000 turnover is just a liability and not a business prospect.

One solitary guy running one small and profitable enterprise is a fine thing - but bringing that one activity into a large company with structures and overheads will just serve to destroy that one small enterprise - I've seen it happen!

 

[Lucan Unlordly]

Assuming this is correct, why not just raise your rates?

Chicken or Egg situation. If the income is enhanced it could demonstrate the willingness of our customers to pay a higher cost making it more likely that our likely purchaser tries to go it alone. On the other hand it will make the figures look better to anyone that just wants numbers without opportunity.

One solitary guy running one small and profitable enterprise is a fine thing - but bringing that one activity into a large company with structures and overheads will just serve to destroy that one small enterprise - I've seen it happen!

In our case the likely purchaser/s could technically shoehorn what we do into their established set up.