how to value my company

teacher2mum

Hi can anyone please help or point me in the right direction. I have owned my own tutoring company for the past 3 years and it is very profitable and successful. slowly with lots of hard work and commitment I have a big client base, am over subscribed and have a waiting list and children on standby. My retention of children and success rate is very high and I have a fab reputation so come highly recommended in lots of local playgrounds. I have 5 tutors who work for me aswell and collect commission from them. My head tutor has asked me to go into partnership with her so we can expand. I am pleased to do so as I know she is the person to help me move forward and we have the same ideas. She has lots of connections to do with marketing and funding and I know she will be very fair. She wants to keep my company name and reputation to build on but it is my baby and so I am very protective of it. :mad: How do we move forward? Do i get my business valued and if so how? What about the money, time and goodwill I have already put in? should I ask her to buy into the existing business or set up a separate one completely. Or should I just let her join from the new tax year but ask for a controlling share of profits! Very confused please help!!

Bean_Counter

Do you have an accountant who you use to prepare your annual accounts? If so, I would have thought that they would be the first port of call for advice and a valuation as they would have most of the information to hand, depending on their skills and qualifications.

Having said that, the valuation of private businesses is notoriously difficult (having just been through an accrimonious one.)

teacher2mum

:eek: Hi, thanks but no I have always done my own accounts and tax returns. Have suggested we get an accountant for this new venture though. What would you suggest pls??

Bean_Counter

If you are happy doing your own accounts & tax then there is no particular reason to change.

However I do think you need to get an accountant for this exercise as there are several different possibilities.

For example, if you have a limited company then you could offer shares over a period of time to your head tutor to incentivise her. The downside to this is that it dilutes your control over the business and does not bring in any extra capital to the business. The advantage is that you can control what proportion of the company is transferred so can still retain overall control if you wanted.

Getting your company valued if difficult because there are different methods of doing it. Do you value based on the prospect of future years of profits? Do you value based on the assets in company (probably not in this case?) As you said how do you value the goodwill that exists, and does this goodwill exist mainly due to your presence (i.e. key person?) It is also normal to discount any initial for a variety of reasons, mainly the lack of transferability of the shares (what I mean is that it is difficult to sell shares in a private company as there is no such stock exchange to sell them on.)

I am not really giving any real answer other than to say find a good accountant. How do you do this? You really need a recommendation from someone. Do you have a good relationship with your bank manager or solicitor who might be able to suggest suitable? I have not used the government's businesslink service before, but they might be able to suggest someone local. Failing that you could always contact the Institute for Chartered Accountants for a list of qualified accountants in the area.

The important thing is to find someone who will give you good advice as to what is best for you now and in the future in terms of growing the company, succession planning, exit strategy etc rather than a simple valuation.

teacher2mum

thanks that's the kind of advice I need. Her own son is an accountant but I would like to use a completely independent one as he is based in the states anyhow. I have a couple of business cards for some accountants in this area from friends who run local soft play areas and small businesses so I will contact them. Yes a lot of the reputation for the company is word of mouth and people ask solely to deal with me as I had tutored friends of theirs. I have to turn alot of people down because there is only one of me and they need a lot of persuading to use one of the tutors I recommend. would any MSE folk out there consider going into partnership using an existing company or would you keep the two entities completely separate?:T :T :T

Bean_Counter

teacher2mum wrote: »

I have a couple of business cards for some accountants in this area

You need to make sure that they have some experience of doing this kind of thing rather than just being a friend of a friend.

Again there are pros and cons of keeping it the same company or starting a separate one. Again this is where you need good advice from an accountant who can see all of your business matters.

Keeping it the same company might make it easier from a trading point of view, in that you are only keeping one set of records, one set of invoices, one VAT registration, one point of business contact etc. It might be confusing for customers if you have more than one company in the group depending on the structure (or maybe not if the complexity is behind the scemes so to speak.)

Having a separate company might be easier if you decide to go your separate ways further down the line. However it might create an associated company for tax purposes and increase any tax payable. Again it all depends on the current structure of the business and where you want the business to go to.

theesel1994

jdturk wrote: »

I apologise for jumping to conclusions so fast!

You don't happen to watch "Scrubs" do you?
Just curious with your user name.

alexymar

As Bean Counter suggest finding a good accountant is key. Ultimately you need to make a decision on your future plans for the business. Is this a lifestyle business where both yourself and your potential business partner wish to own, manage and reap the rewards of your efforts or are you looking for an exit and to sell the business. This will dictate how you shape the business and the type and structure of share holding.

Also and with the greatest respect to accountants, the most important person in this type of transaction is actually a good lawyer as you will need contractuals that protect both parties and tight legals will enhance the value of the business as any potential future acquirer will want to ensure they are buying a solid, repeatable business. This shareholders agreement etc will also deal with how you will split the business incase you have a major fall out which does happen. A good accountant will help you the value the business and the easiest way is to take the last full set of the accounts and then work out the value of each share issued (you may want to take opportunity to re-structure shareholding to suit both owners). Its then about how may shares you want to give away and sell to the other person. Its at this point would will quickly realise if your friend or "investor" really want to invest some of their real cash or if they thought you would just give them some of your action on a promise of the business they may bring...

Best of luck:rotfl:

paulwf

There are loads of things to think about with regards to what you want your role to be...I'm not just talking about pure profit but also what you find most enjoyable. It sounds like you could take a step back from tutoring and be the business manager for the company but do you want that?

An alternative would be to outsource as much of the admin as possible, an easy example would be to use a book keeper and accountant then you can spend more time tutoring. You could look to get a business advisor on board to help with expansion and leave you and your head tutor to focus on the actual teaching.

Expansion in terms of turnover doesn't always bring in more net profit so think carefully before you give away or sell a share of your business. If you have a waiting list why not put your prices up by 10% each year, hire in some admin help (as above) and make more money for less effort?

Premier_2

alexymar wrote: »

As Bean Counter suggest finding a good accountant is key. Ultimately you need to make a decision on your future plans for the business. Is this a lifestyle business where both yourself and your potential business partner wish to own, manage and reap the rewards of your efforts or are you looking for an exit and to sell the business. This will dictate how you shape the business and the type and structure of share holding.

Also and with the greatest respect to accountants, the most important person in this type of transaction is actually a good lawyer as you will need contractuals that protect both parties and tight legals will enhance the value of the business as any potential future acquirer will want to ensure they are buying a solid, repeatable business. This shareholders agreement etc will also deal with how you will split the business incase you have a major fall out which does happen. A good accountant will help you the value the business and the easiest way is to take the last full set of the accounts and then work out the value of each share issued (you may want to take opportunity to re-structure shareholding to suit both owners). Its then about how may shares you want to give away and sell to the other person. Its at this point would will quickly realise if your friend or "investor" really want to invest some of their real cash or if they thought you would just give them some of your action on a promise of the business they may bring...

Best of luck:rotfl:

This thread is about 3.5 years old! :eek:
Hopefully the OP got their business valued along time ago ... :cool: