FAQs

For starters, despite investing capital and dedicating a lot of time running their firms, many business owners forget that their business is one of their greatest assets. If your business is one of your key assets, then does it not make sense to know how much it is potentially worth? Knowing the value of your business (what the market is willing to pay) also acts as a strong motivator for you to take strategic action to enhance the value of your business.

Get started early. You will want to conduct a business valuation years before a sale, particularly if you want to increase earnings or cash flow in order to raise the asking price. You will need to show at least the last three years of financial statements to a prospective buyer, so valuing your company three or four years prior to a sale is a good strategy if you want to increase its value prior to eventual sale.

The value of a going concern business includes an intangible enhancement of the value of the operating tangible assets. Valuing a business as a going concern therefore calls for full review of tangible and intangible assets and how these co-exist with the company’s strategic advantage. The break-up value mainly focuses on valuation of tangible assets.

Our service targets both full business sales and partial sales. Even if your business is profitable you may decide to sell for personal reasons, most common being retirement. For a business with a profitable track record, the sale decision (partial) may still arise if you need money for expansion or to use the shares of your current business to acquire another business. In rare occasions, you may have to relinquish part of your business due to change in ownership regulations.

By securing competing offers from purchasers in a structured and carefully managed sale process.

While the core valuation process remains the same, time frame for valuing a business varies based on complexity of operations and industry, availability of accurate historical accounting records and most importantly the nature of valuation service required (full valuation report or an estimate of value). Time dedicated by senior management to support the exercise also impacts on time taken. One of the very first things we do before accepting an assignment is to settle on an agreeable time frame.

There is no set formula although larger groups tend to have internal guidelines based on a target return on investment. The most common valuation parameter is a multiple of current year earnings before interest, taxes, depreciation and amortisation. Depending on the sector, purchasers will also consider other bases of valuation, for example, multiples of turnover, gross profit, cash flow and assets. Valuations also vary depending on the type of transaction sought – for example, a cash-only transaction or a transaction involving a combination of cash and deferred consideration (where part of the consideration includes a participation in the future performance of the business).

Over the past decade, there has been increased demand for well run, profitable organisations. Top on the list of buyers are private equity firms, formal investment groups and actual operating businesses looking to expand their domestic market shares and regional presence. Though the current environment favours sellers, buyers have intensified their screening process – key focus being on corporate governance, strength of management team and sustainability of future returns.

Be it as an individual, investment group or company seeking to acquire another business, the basics underlying the purchase decision remain the same – your putting money in today in order to earn a future return. After identifying a potential buy candidate, the next step is to fully understand the economics of the company. This will include; understanding the revenue-cost cycles, margin drivers, industry competitiveness and most importantly, future capital requirements. This exercise forms the basis of estimating the value of the business and therefore the purchase price.

As the business owner, emotional attachment to the firm creates some bias. Therefore, hiring a professional business appraiser comes with the benefit of getting an independent and impartial viewpoint. The appraiser will look strictly at value and not include emotional attachment. This usually results in a more accurate valuation