Guide to Selling Your Business
Valuing Your Business
There is a wide range of valuation techniques that can be utilised to calculate a value for your business but, in the end, the value of your company is the amount that a willing buyer is prepared and able to pay for it. Most buyers will, however, use one or more of the following techniques to produce a valuation range, which they will then use as a basis for negotiating the final purchase price for your company.
The most common valuation techniques and yardsticks employed are as follows:
A multiple of earnings (which can be calculated in a number of different ways, e.g. at the post-tax level or before deduction of tax and interest or before deduction of tax, interest, depreciation and amortisation). The precise multiple to be applied will be based on the earnings multiples of comparable quoted companies (with an appropriate discount incorporated) and on exit multiples achieved in recent transactions involving other companies in the same sector.
Discounted cashflow, which calculates the present value of your company by projecting future cashflows and then discounting them at an appropriate interest rate.
Net asset value, which can be relevant if your company has significant property interests.
Factors which will affect the final valuation or price include:
Whether the potential purchaser has a strong strategic rationale to complete the acquisition.
Whether the potential purchaser can derive significant cost savings by combining your company with its own existing operations.
Whether there is surplus cash or debt present in your company at completion.