Every business is different and the valuation process and methodology will vary accordingly.
Very often our clients have an expectation of value and this is usually based upon a multiple of profit or turnover.
Vendors and purchasers will often go through a very different thought process when considering value.
There is no standard model of valuation. The traditional methods of profit multiples, asset value and discounted cash flow all have their place but the market value arrived at by using these tools is often very different to the view taken by a purchaser.
In fact, different types of buyers will have very diverse views of value. For example, a trade purchaser in a sector that is consolidating will often be prepared to pay a premium to grow market share. An investor on the other hand will be driven almost entirely by return on capital employed.
Listed below are some of the other factors that need to be taken into consideration when arriving at a realistic asking price:
- Past performance.
- Working capital required.
- Length of time established
- Customer base.
- Balance sheet (liabilities and assets)
- The economy in general
- Competition and market share.
- Outlook for the sector.
- Cost of replacing outgoing management.
There are many more aspects to valuing a business effectively and the often-used expression ‘a business is only worth what someone is prepared to pay for it’ holds true.
That said, Ventura Business Brokers work closely with all of our clients to maximise value and establish a guide price that is both credible and achievable.