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Old 14 January 2011, 06:46   #1
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Business Value?

"I have a friend who has a business running a commercial RIB and has had an offer for the business". Whilst it is ok and he does not really want to sell, how would you go about valuing a business like this and how would you go about putting it on the market?
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Old 14 January 2011, 07:27   #2
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I have friends like that too.

Valuation is most often a measure of profit, adjusted for things like potential and asset value.

If I had 60k to spend, I would want to buy something that had room to grow and that offered some of that 60k as saleable assets. I would want a return better than the banks offer, 7-14% seems to be a head-turning range for investors.

The UK Business forums are full of helpful chaps:

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Old 14 January 2011, 07:43   #3
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i would probaly do turnover plus 40% plus the value of your assets
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Old 14 January 2011, 08:30   #4
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Business value is primarily based on the value of its assets and a combination of profitability and perceived longevity. Good will from existing clients and its certainty is paramount.

If you bought a plot of land worth 3k, an acre perhaps,with a telephone mast on that had a 10 year contract with a phone company of decent credibility, paying 10,000 per year. The costs of maintaining the site rested with the tenant. It would belikely that a sale price would incorporate the value of the land plus 8 times the profit. Income is almost guaranteed and the time frame known. Costs too are almost certain.

Perhaps 83,000. This incorporates the fact that money now is worth more than in the future, plus the fact the phone comp may go bust.

A rib business would need to show profits, how long had it gone on, is the business from random tourism at a spot, does the business have exclusivity at that spot, how many years has it traded from there, etc etc

A business with a wind farm contract is obviously different. Or a rib business with tours for large corporates done on a regular basis is different as well.

If someone else could buy a rib and set up on exactly the same spot, there isn't much value in the business, it is more just the asset value.

Hope this helps.
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Old 14 January 2011, 13:05   #5
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250kts - these is no absolute right answer, and different people have different approaches - the reality is it is worth what someone is willing to pay for it. Very crudely something like 5x profit is common measure, but might not be reasonable for a new business (with growing profits) or a business which is asset rich. There are often other complications, e.g. will you stay to run the business for some period - what are the terms of that contract? or earn out clauses which base part of the value of future success.

There are companies who specialise in helping you sell (or buy) businesses and they would be in a better place to comment looking at your friend's accounts in detail and with a knowledge of how particular markets/sectors differ. Beware of any companies who come touting for business to help you do this or add you to lists - they are basically like estate agents! I don't know anyone in your part of the world - but if you ask around other people who have sold a business they may be able to help recommend someone - or your accountant may be able to signpost you (some accountants will offer this - but unless they do it a lot I'd be wary).

Of course if you do go down this route - make sure your friend seeks legal advice so he doesn't get left with any unexpected liabilities (e.g. left with the debt for the boat!).
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Old 15 January 2011, 10:24   #6
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Originally Posted by Polwart View Post
250kts - these is no absolute right answer, and different people have different approaches - the reality is it is worth what someone is willing to pay for it. Very crudely something like 5x profit is common measure
And something else people forget whilst engulfed in the 'what if' moment is that often, if the owner is a key member , when he isnt there, the business may suffer if a like minded individual cant replace him, if its one of those small niche businesses .. because he may have a multiple skill set that would cost a lot to replace, if buying in from out side.

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Old 15 January 2011, 11:53   #7
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If i Was looking to buy any business the key things I would look at are./

Trading History (longer the better)
Asset Value
Costs of transfer
Any licences that need to be renewed etc.

Chris Stevens

Born fiddler
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