Business Valuation help please! - The Book-keepers Forum (UK)

tonys · Senior Member

Business Valuation help please!

Zoe · Senior Member

Hi Tony

I would get professional help on this one if I were you. There are all sorts of implications for the valuing of a business and getting it wrong could come back to haunt you. I realise they probably won't want to fork out extra money but I would say it would be worth it for a more accurate figure. There are lots of companies out there who can do this and it is worth paying a bit to get a correct valuation.

Use google, or ask for recommendations of a good firm in your area. If you want the name of a good company we have used in the past please let me know.

Kind regards

Zöe

tonys · Senior Member

Zoe,
Thanks for that. I would appreciate that company contact if you could.
Regards,
Tony.

RobH · Expert

Give a valuation to a 100 accountants and you will probably get 100 different answers. My rule of thumb for a lot of businesses, is to look at the net profit, deduct an amount for a manager to come in and run the business (say £25 to 30k) and multiply by about 3. Unfortunately this would probably give this business a zero value for goodwill (which may be correct as on those turnover figures are negligible). However, it would have some value if the same clients were repeat business, but that would assume they never got better! My gut feeling is that if I were advising my client on buying the business, I would advise a low offer given the information to hand.

When all is said and done, a business is worth what someone is willing and able to pay for it.

Rob

tonys · Senior Member

Hi Rob,
Thanks, it is awkward as you would have to consider length of time trading to build up goodwill and a lot of the clients could walk away with the owner as with hairdressing etc. I will advise him to get a professional valuation.
Was going to ask you to reply to the sage quickbooks thread but you already have! Thought you would cover that one well as usual,
Regards
Tony

RobH · Expert

Thanks for the vote of confidence Tony...probably misplaced!

Rob

Zoe · Senior Member

Hi Tony

I have emailed the contact details to you.

Kind regards

Zöe

Wella · Expert

HI Tony

Another method to work out goodwill could be to look at net profit over five years, calculate the average and multiply by between 1 and 3, as agreed by the partners. If one of them plans to buy out the other, then that will be an area they will probably fall out on.

Only 98 different answers to go Rob

Bill

RobH · Expert

Hi Bill..I bet we get them too!

littlebookkeeper · Senior Member

Have a look at FRS 10 which deals with the valuation of fixed assets including intangible assets, ie goodwill.

There are different methods you can use for the valuation and probably the one based on future years net profit would be appropriate. (Can't remember details). I think Zoe is right, seek professional help as goodwill is something that gives even the most senior of Chartered Accountants a headache!

Carole

Shamus · Forum Moderator & Expert

Ahh love it, someone speaking my language.

FRS10, Goodwill and intangible assets really though is aimed at how much the assets (including intangibles such as goodwill) are recorded at in ones books rather than valuation of the business for sale to a third party but I can see where your coming from on that one Carole.

Goodwill is really one of those things that's just how much someone is willing to overpay or indeed underpay for a business (negative goodwill, just remembered that one from an exam question that I went back and spent way too long on being sure that the ACCA wouldn't throw that answer at us in an exam!).

Someone can value a business at anything that they wish but the reality is really how much is anyone willing to pay for it.

General rule that I've heard bandied around is fair valuation (rather than book value) of tangible assets plus three years profit (after any one off / non repeatable sales such as disposals have been excluded from the figures).

However, as stated by several people above, for this you need the assistance of a chartered accountant who has experience of valuations.

littlebookkeeper · Senior Member

Thanks for clarifying that one Shaun.

Been a few years since I've needed to consult the old FRS's so a bit rusty on the content!

Carole

tonys · Senior Member

Thanks for all the feedback I gave the client the number provided for a professional valuation and suggested the partners come to a mutual agreement on valuation due to the low turnover etc.
Regards,
Tony