Independent Business Valuation

BigFish75

Hi all,

A friend of mine has a fairly well established business but he and his partner no longer see eye to eye on how the business should be run. They cannot agree on a fair market value for the business so one can buy out the other (they are 50:50 owners) and the 'valuation' their Accountant came up with was a one pager which basically boiled down to a completely subjective x times profit figure which neither of them have much faith in.

The question I have for the board here is does anyone know where a PROFESSIONAL and INDEPENDENT business valuation can be obtained which won't cost the earth? As their mutual friend I've kind of been asked to help resolve this before they totally fall out. I've looked at some of the business valuation software packages out there but they really don't seem to be very objective and none take any account of or contain actual data from the sale of similar businesses. They also don't really factor in current market conditions such as a lack of available finance which will reduce the number of potential buyers and in turn (I guess) reduce the potential sale value of the business.

Are the "Big Four" the only realisticc hope of getting a professional and independent buisness valuation and if so can anyone give me ball park pricing of same from your own experience? Ithink the guys would be happy/prepared to spend €2-3k but not much more than that and in my experience €2-3k doesn't get you much more than a cup of coffee in those plush offices. One person I asked who used to work for a 'Big Four' said they wouldn't touch a valuation project for less than €30k regardless of the fact that the business may be relatively small. Could that really be true???

All suggestions/recommendations greatly received and if you have some info you want to keep private please just PM me, I will maintain confientiality.

Regards,

Fish.

Hanley

Depends on the size of the business tbh. I know of firms who are turning over 7+ figures and only paying around that much for an audit with a lot of time being spent on it. Don't be afraid to look outside the big 4 either. A lot of the time the smaller firms will have a lot of experience dealing with family businesses and partnerships like your friends'.

I guess really simply you could say something like the net present value of all future cashflows plus total net assets is what the comapny's worth right now.

Maybe someone else could offer some more insight tho.

BigFish75

Hi Hanley,

Thanks for the reply.

I am familiar with the theory of discounting future cashflows from my college days but online research in the last 24 hours would suggest that you also need to establish the predicitability of the future cashflows, determine a terminal value for the business and then apply the correct discount rate all of which requires significant expertise and access to relevant up to date information and even if that was achieved it would only produce a valuation based on the income approach which has limited value without comparison to a asset/cost to create type approach and of course the market approach which requires knowledge of what simialr businesses ACTUALLY sell for. See http://en.wikipedia.org/wiki/Business_valuation

Assuming I can find someone who can produce a truly independent valuation based on the principles and models outlined in the wiki article above the bottom line is it is still only an opinion and does not necessarily mean there is a buyer in the market right now who will pay that price. there may be no buyers in the market at all due to the current lack of confidence and non availability of finance and even if there is a buyer in the range of the valuation report he/she may want to pay a substantial portion of the purchase price on some kind of earn out and I'm not sure the lads will go for that.

From the dearth of replies I can only assume this kind of report falls into the "special projects" department for most Accountancy firms and as a result is going to cost a lot. I called a few smaller firms this morning and whilst a couple said they could do it it was clear the clock would start ticking immediately, there wouldn't be a fixed price and all I would be getting is a glorified "guestimate" which the lads won't have any confidence in so I'm still really back to square one looking for anyone out there who can tell me where I can get a PROFESSIONAL, INDEPENDENT valuation of a relatively small business (Turnover +/- €750,000) done which won't be prohibitively priced?

Anyone????

Mr Clonfadda

my accountant is always saying that it is valued on profitability in passed years. approx 3-4

elgransenor

Fish,
nobody knows the value of their business better than the 2 partners themselves.
So the solution is for each one to make a sealed bid for the other partner's share-whoever makes the highest bid must buy out the other guy.
They cannot mess around with the bids....think about it.
So they just need a solicitor who will accept and open both sealed bids and each partner must accept the outcome.
Their company solicitor would be happy to accommodate them I'm sure.:cool:

al10pin

Fish,

Please advise the partners not to spend any money on independent valuations. They would be better to seek business mediation, with a professional spending a couple of days with the parties to try and reach a compromise. You are almost certainly not the person to do this, as you are in a no win situation.

Shares in a private company, are only worth what someone is willing to pay for it. The parting director is not in a strong negotiating position, as at best he will be given a period to find a buyer, and even then, the existing Director will still have to accept any future working arrangement with the new investor.

If you want any further advice please pm me.

Mark

byrne0f56789

This doesn't seem like a business valuation issue. Your friend and his business associate seem not to want to give the other an inch. There is no solution if they don't like each other.

Valuation of the company is totally up to the buyer. Usually profit X 10 is a rule of thumb, but this does vary for different sectors. There is no easy solution if there are personal problems.

Kanchelskis

Fish

Any firm with a corporate finance dept will take on this valuation. Go to a smalller firm outside of the Big 4. Agree a fee upfront - they will base it on the amount of time they expect to spend on the valuation.

The key to this however is how the partners expect to exit the business. One they get the valuation what do they plan to do then? Good luck selling anything in this environment.

Another option is a shareholders/partners agreement if they both wanted to continue in the business. This will set out the terms under which they work together, decision making, dispute resolution entitlements etc. Again any decent corporate finance dept will advise well on this.

Tim Carthy

Dear Fish,

Valution report for a small businsess does not have to cost €25-30k. A valuation of a small business can cost substantially less. I am partner in a medium-sized Dublin accounting practice and would be happy to talk with you or your clients

Tim

swanvill

Hi Fish,
If the two partners are looking to buy each other out, I suggest that they do as Elgransenior advised and put in a one off sealed bid each and who ever bids the most gets control of the business,subject to the fact that they have the funding in place.

Sorry for pointing out the obvious but each guy should probably get his own valuation and talk to their bank managers about funding the purchase. I also suggest that they have looked at websites like the following:

http://www.thebusinessshop.ie/classifieds/tbsaboutus.asp

Best of luck.

Swanvill.

BetheChange

Fish

Many mainstream accountancy practices will be able to help with this. Its more than the big 4 who can value the business. One of the few benefits of the recession is that the previous fleecingon fees is now coming to an end. With a bit of research and talking to a few mainstream firms you will surely find some honest decent accountant who knows what they are about for reasonable fees.

As an aside looking at some of the comments made it does strike me that business valuation may not be the issue here and that the lads agreeing a structured exit will be more important for the future of the business. At the end of the day they will probably require independent advice on valuations rather than just one accountant advising the company. A mediator or someone to come in and knock their heads together with a bit of common sense will probably produce the best valuation. I do not envy you being stuck in the middle as a friend.

If you want some advice on valuations or business break ups, we do work in that area so pm me if you want and we can arrange a chat.