how do you show value of a business if you then sell it on?

searcher30

how do you show value of a business if you then sell it on?
if you set up a business such as a gite (type of bed and breakfast) how do you evaluate the business's worth when you need to sell this on? thanks in advance.

star1_2

I'm sure loads of people will give differing opinions - but generally an accepted method of valuing a business is 15 to 16 times it's profit (after all decuctions) based on proven accounts for a minimum of 5 years.

This is a generalisation at it must be noted that a business operating in certain sectors can be valued completly diffrently, in addition numerous other factors affect a businesses value - for example if you were a supplier of car parts that specialised in Rovers, your business is now going to be far less (as Rover cars were taken into receivership/closed down) ....

Hope that helps .... (soft of) !

:cool:

WHA

15-16 times profits is far too high for any small/private business - that is the kind of multiplier used in the corporate world when buying/selling/valuing very large businesses. For small private businesses, you are more likely to be looking at 3 times average profits (after adjusting a fair wage for the proprietor and adding back any private expenses deducted in the accounts) for the value of business goodwill.

But, you have the break down what you are actually selling. With a gites, you will have the building itself, then you have the fixtures and fittings, and then you have the business goodwill. All three added together give you the overall value of the entire entity.

buglawton

If you buy a small to medium business, you are mainly buying a set of relationships to customers and suppliers. The real value will depend on how you plan to maintain and develop these.

Lawbag_2

the value of the business once defined is shown on the Balance Sheet as a Fixed Asset of Goodwill.

WHA

Lawbag wrote:

the value of the business once defined is shown on the Balance Sheet as a Fixed Asset of Goodwill.

Accountancy rules only allow you to show "purchased goodwill" - i.e. if you've bought it, you can show it. A business can't just decide it has goodwill and put it on the balance sheet for itself - you need a real transaction.

Astaroth

There are lots of factors when valuing a business - at the end of the day it is like anything else, it is only worth what the highest bidder is prepared to pay.

The main considerations of a business sale is what physical assests does it have (like in this case the gite itself), its current profitability and the "prospects" of the business. Many of these are soft intangable or (given the laxness of GAAP) easily manipulated which makes due dilligance so important in the purchase process.

As a rule of thumb I would say you are looking to 3-5 times profitability plus market value of assets.

lifecoach_2

I am a Business Transfer Agent so value businesses all the time.

To say that 3 to 5 times profit is the norm for calculating goodwill is rubbish.

No one in todays market pays more than 2 times profit, and some with specialist skills will not even reach one years profit.

There are some agents who perhaps use 3 times profit as a benchmark but of course they never sell their businesses their income relies totally on obtaining large upfront fees to sell your business.

So if you are selling your business - beware - you could be throwing away money

Petmidget

I would say its pretty simple.

It is worth what someone is willing to give you for it.

Unfortunately what that is will depend very much on what you are selling and who is buying.

In the case of a gite.

How much is the physical property worth = part a

How much money will it make the purchaser in a year;
How long is the new owner willing to wait for the return of the initial outlay;
How much finance cost is involved in initial outlay;

(Money * time) - finance = part b

a + b = value.

But really that is only a starting point, its all down to negotiation.