Buying Out Shareholders in Ltd company
laura5235
Posts: 1 Newbie
Hello,
I'm hoping you can share some advice / experience please.
We (couple) own 50% of a business with family members who are waiting to retire and sell the business.
The business is a limited company and has been trading over 20 years.
There are no big assets other than small stock level, vehicle and tooling (factory / office is leased)
We are looking to have the business valued but google tells me that this is difficult as there aren't much assets so not really a formula to base a value on
Repeat customer base. Good annual turnover year in, year out.
We all want to get a 'fair' price - we intend on approaching the accountant to guide us but wondered what other options there are?
Thank you!
I'm hoping you can share some advice / experience please.
We (couple) own 50% of a business with family members who are waiting to retire and sell the business.
The business is a limited company and has been trading over 20 years.
There are no big assets other than small stock level, vehicle and tooling (factory / office is leased)
We are looking to have the business valued but google tells me that this is difficult as there aren't much assets so not really a formula to base a value on
Repeat customer base. Good annual turnover year in, year out.
We all want to get a 'fair' price - we intend on approaching the accountant to guide us but wondered what other options there are?
Thank you!
0
Comments
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Yes your accountant is a good place to start - if they have some experience of this. For small businesses it's different from large PLCs and listed companies. Depending on the type of business, sector etc., the starting point - very, very generally - may be anything from the net asset value (all assets minus all debt, so the balance sheet total), or if the business is consistantly profitable, then between 3-8 years net profit, probably somewhere in the middle.0
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Re the 3-8 years net profit. Forgot to mention that net profit for valuation purpose is excluding directors income or dividends. So profit + directors/shareholders income. Essentially the figure you are multiplying is the cash that would theoretically be avalable to the new owners (on a business as usual basis). This is then multiplied by x, where x reflects the confidence that this amount will be generated in years to come. With small companies more so than larger companies, they are more vulnerable to changes of market or competition, so generally the multiple is not very high hence 3-8.
Depending upon the nature of the business, the final calculations will involve a bit more than this and look at EBIT/EBITDA and discount rates etc. But the above is a simplification to try to answer your question.0 -
This is not a scientific way of doing it.....
If i were to value a business that i worked in i would look at how much money the business takes in and then allocate a salary to myself based on the work i do (and the relevant company expenses associated with that - eg NI) - and the costs it incurs (apart of interest on debt) and the balance will leave a profit. I would factor a tax rate of 20% to that profit to get a net figure. I would then apply a factor of around 10 to that to give a capital value to the company. (IE you would expect a 10% return on your money if you were to buy the business).
How does that work out for you? its unlikely to be particularly high if the business exists to support you not more than on a subsistence basis. It will be high if the business churns off cash.0
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