You don't need to be an 'investor' to invest in Singletrack: 6 days left: 95% of target - Find out more
I need to value my business (for the purposes of selling shares between the business owners). Is anyone familiar with a simple but robust method of valuing a business.
I know there is the simple idea that it is somewhere between 2-5 times the annual profit......but I need a methodology that will give it some more credence in terms of what multiplier is used.
Ideally I need something that will demonstrate to HMRC if necessary, that we have followed a reasonable process.....and not one that has just plucked a number out of the air.
cheers
https://en.wikipedia.org/wiki/Discounted_cash_flow
https://en.wikipedia.org/wiki/First_Chicago_Method
https://en.wikipedia.org/wiki/Comparable_transactions
https://en.wikipedia.org/wiki/Book_value
https://en.wikipedia.org/wiki/Liquidation_value
Good luck - might be easier to call someone in ....
Take this with a pinch of salt, but I seem to remember when my mum's company was valued it was current assets x (value of individual share / profit per share)
Don't you want to engage a professional given the sums involved etc?
Quickest method is five times EBITDA; if you can't make your money back in five years, what's the point?
Are you looking to satisfy HMRC that a particular value was fair market value or are you trying to agree amongst yourselves what value you should pay for someone wanting out. Those things are not necessarily the same number, not lease because the value to YOU of owning a larger share may be very different than the value to me of owning a small share of your business. I’d even say it depends why someone wants out - are they in a rush; are they going to set up in competition; are they unwell; have you fallen out.
profit multiples can work but can also be too simplistic - at one extreme loss making businesses are worthless, at the other a business which is all about an individual is clearly not worth the same if that individual leaves. A business where everyone gets a comfortable dividend would be a different value from one where the profits are invested in growth. The risk mix, the future predictability all affect value. HMRC can accept all of those arguments but the are much more likely to, if 1. You engage professional advisors; 2. You agree it up front not in the middle of a tax investigation!
Quickest method is five times EBITDA; if you can’t make your money back in five years, what’s the point?
Eh?
Interest and Tax can eat up 100% (or more) of EBITDA, so it's no guarantee you'll ever get anything back.
5 x Profit is one rule of thumb.
or try working out the cost of entry.