‘What’s my business worth?’
……… Are you sitting down?
Knowledge, experience, and good judgement
Saying goodbye to arguably your greatest asset – and sometimes your life’s work – is not easy,
You will need to be prepared to make some tough decisions.
Planning is everything.
At Pinkham Blair, we recognise that a proportion of our clients are interested in building their business into a saleable asset.
Generally, businesses are valued as a multiple of their annual profits.
A simple valuation formula is:
Enterprise value = (adjusted) annual profit x multiple
The way that owners choose to remunerate themselves can have a disproportionately big impact on the profit reported in accounts. The best example is dividends versus salary.
It is therefore normal to make an adjustment to the reported profit – hence “adjusted profit”. The multiple is perhaps easiest thought of as the number of years’ worth of profit that a buyer is prepared to pay to buy the business.
There are internal valuation factors that relate to the business being sold, including:
- How dependent it is on the owner(s)?
- How stable are the revenue streams?
- How stable is the cost-base?
- How loyal is the client-base?
- How systemised is the business?
Instead of just accepting the current “market rate” that is generally expected in your sector, you can improve your multiple by working on the internal factors that are most relevant for your business. Over time you should be able to improve many if not all of them.
A review of the factors will often involve a “granularisation” of business processes to look for opportunities for improvement, hunting for some quick wins before gaining momentum and tackling some bigger, more persistent, problem areas later.
Once you embark on this journey, you’ll often find that it is never-ending cycle of continuous marginal improvement.
Over many years of trial and error, we have found that the most consistently successful approach is to make decisions based on accurate management information. We advocate holding regular monthly board meetings, with a relatively fixed agenda, chaired by one of the Pinkham Blair team.
Being upfront, you’ll be doing most of the hard work, but with a regular, monthly, axe-sharpening session with one of us to help you along the way.
They are fantastic to work with, I’ve been with them for 20 years.
Charlie Price, Price Support Services
The most important thing is that I trust Derek to do the right thing.
I am 100% confident in recommending them, which I regularly do.
We’re all ears
Tell us how your organisation operates and we will use innovative thinking to make your business better.