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Any accountants here? What would be a reasonable fee for a company valuation for sale purposes? The company is turning over c.£2m and all the numbers are easily accessible on an online accounting program.
Five times EBITDA. If you can't make your money back in five years why bother?
That will be £1000 please. Let me know where I can send my invoice to. ;o)
Yeah, but it's more complex than that obvs. So about a grand then?
True value can only be determined by the buyer. You may as well use one of the simple formulae and then see what folk offer.
Five times EBITDA. If you can’t make your money back in five years why bother?
You mean gross profit. EBITDA can be positive but still run at a loss every year, so you can have a +ve EBITDA and never make your money back.
See a lot of company valuations in my line of W ork. For a £2m t/o business you should be able to find a local or regional firm of accountants to put you a pack together, calling on the expertise of their ‘corporate finance team’ (one of the partners who hasn’t got much audit work on), who will value the business at 4 to 7 times EBITDA. Unless you are a vets practice or dentist in which case it will be loads more. They will charge you about 5 grand for the privilege. They final amount paid for the firm will probably near little similarity to the valuation.
Or you can get a national firm to do it. They will charge you 10 grand. The end result will be the same.
How much, how long is a piece of string.
We use one of the big companies, and it's about £5k just to do a tiny bit of work that's not 'in scope' of the audit.
Get quotes.
But, value of a company is 'subjective'. I've done due diligence on companies in the past and we've torn accounts to bits, and got the companies for nothing, as the audited accounts were a lie with regards 'work in progress' !
PS I'm a Management Accountant, not auditor
The reason I'm asking is because I want to sell my 50% share to the other shareholder but now I've given it a bit more thought perhaps a valuation based on earnings is irrelevant.
What you think is reasonable / what they will agree ? Negotiation ?
Sometimes Ebitda is not too relevant for example in an asset rich company which makes little profit.
Also you are selling your 50% shareholding to an existing shareholder to make them a majority shareholder, therefore premiums may be applied in certain circumstances.
You need to get quotes from accountancy firms who have expertise in this area.
Don't forget the tax side of the transaction.
Agree with Nash, you need a tax accountant
Also you are selling your 50% shareholding to an existing shareholder to make them a majority shareholder, therefore premiums may be applied in certain circumstances.
Or of course discounts because there is limited open market for people who will own only 1/2 the company and the headaches that go with that. Not to mention that your shareholders agreement or articles may have restrictions on who can can’t sell what without the other’s cooperation.
You probably do need an accountant at some point to make sure the tax value is handled correctly, but it’s probably easier to tell them your intended saw price (and any rationale) and let them agree it with the revenue rather than vice versa.
Since you are in the business it should be possible for you to work out what it is worth to you, and to the other party. I am sure all sorts of personal circumstances play a part in this - why do you want out? why does he want to own it all? what will you be doing (competing?) next? Will any staff follow you there eventually? what will you use the money for? Can he get his hands on the cash? How quickly do you want to exit? How would any customers / staff perceive your exit? What is the company’s debt position and forward order book like? Do either of you have any personal guarantees etc.? Does Brexit or other market changes present a risk to the business? do the two of you actually still get on? Etc. You need to be able to have that discussion with someone who really understands those issues and I suspect a corporate lawyer may be as well to advise as an accountant.
At the end of the day a starting point in the discussions would be: if he walked in tomorrow and said he wanted to leave what would you be prepared to pay him for his half to run it yourself, or in order to sell the whole business on 6/12 months later.
Depending on the situations it may be that some sort of “earn out” arrangements are actually better for both parties.
That's covered a lot of very relevant points Poly, and this is the area I need advice in, rather than just a valuation based on earnings x multiplier.
I'm not sure who to go to for advice now!
Also depends on the type of revenue. Subscription business typically looked upon favourably.
What does the shareholders agreement state? A minority discount may not be applicable. You'll probably want a corporate lawyer and corporate financier to provide quotes to grt a full picture. Drop me a PM with an email address if you want a valuation quote from our corporate finance team.
More than 2/a handful of shareholders? Is it significantly scaling month on month and/ or deep tech with lots of r&d in the pipeline?
If not and the co is small enough that a £10k fee would hurt you both you will probably be fine using a textbook valuation model yourself based on your accounts. You can google exactly what the accountant will use and likely get there with a few hours work.
The accountants will charge (IMO waste) time looking at goodwill, brand, customer book, competitors but in the end it’s often just down to revenue / ebitda / what someone is prepared to pay on a given day.
That’s covered a lot of very relevant points Poly, and this is the area I need advice in, rather than just a valuation based on earnings x multiplier.
I’m not sure who to go to for advice now!
In your shoes I'd be talking to my lawyer, if they aren't well equipped to help you they will have worked with others in similar positions before and be able to refer you to someone. Do you have any idea of the other Shareholder's view/expectations though? I once had a meeting about acquiring a supplier that was in some difficulties. Their views on value and ours were an order of magnitude apart and it would have been irrelevant which of us had a nice report saying we were right (in reality both of us could have paid £5k to get a nice report justifying our position).