selling your company

SnipSnop

Just thought I would ask if anyone has any experience with selling your own company.

Not quite sure where to start, but I guess first step is putting a price on the company.
Talk to a financial broker? (Seem to mainly be resellers of mortgages, insurance etc).
My main concern is not getting done over on the price and the actual negotiations as I already have a good idea about who would be interested in taking over the company.

Any ideas/advice?

ishotjr2

EBITDA is the only way I am aware to value a company.

Of course special circumstances, industry, growth, track record etc... any moderately conscious accountant will crunch the numbers for ye. You will need one anyway to look over the books and I would invite her/him to final stage negotiations as there are usually questions.

There are people you can hire to do this for you but only worth considering if talking high 6 figures and above. (Grant Thorton, Deloitte etc.... but if you needed their help you would not need me to tell you their names).

SnipSnop

Thank you very much for your input. Accountant would be a good first step alright, think I will arrange a meeting with him and see where that takes me.

pedroeibar1

SnipSnop wrote: »

Just thought I would ask if anyone has any experience with selling your own company.

Any ideas/advice?

Yes. This forum has a 'search' facility. Use it, there are several threads on this topic.

SeanSouth

First of all I just want to declare my hand here. I am a business broker. My firm buys sells and values businesses throughout the country and I have to say firstly that I would discourage anyone from trying to calculate the market value of a company using static formulae. There is a lot more to this than some might lead you to think. Unless you know the market itself and are proficient at valuation you will invariably arrive at the wrong answer.

One contributor above mentioned EBITDA as a basis for the valuation , another might mention EBIT, someone else might suggest Adjusted net income, or Net income OR Sellers discretionary cash flow (SDCF) or even sometimes Turnover is mentioned "as the way to go". You'll hear them all from time to time. I've also heard reputable accountancy firms talking about this type of thing and this is entirely due to lack of experience and knowledge in this area. I recently had a meeting with a senior manager of one of the big 5 accountancy firms. We were discussing two different businesses with similar EBIT figures and the accountancy firm had decided that they both had similar valuations (4 X EBIT) I then pointed out to him that one of the businesses enjoyed a return on capital of 5% and the other had a return on capital of 12%. He went away scratching his head muttering something about a junior member of staff who had done the ground work. Return on investment /Return on capital is as important or a more important factor in the valuation of a business as the multiple of earnings is.

In my view you need to be very careful when arriving at the valuation for your business. You need to find a firm that :

1) Has a day to day knowledge of the market
2) Is proficient and experienced in valuing businesses across different sectors
3) Is capable of defending the valuation to potential buyers
4) Has experience in evaluating opportunity and risk
5) Has experience and know - how in bringing a business to market and approaching potential buyers
6) Has sufficient experience in negotiation, due diligence, drafting heads of agreement and drafting contracts to conclusion

Avatar MIA

EBITDA has been used to value a company by a certain number - what should that multiple be?

Say two companies have the same EBITDA, but one company has a huge loan that it is servicing? As said above, ROCE is a good indicator.

However, if anyway complicated and not just the corner grocery store the purchasing company is going to want to undertake Due Diligence. Check supplier/employee contracts, loan agreements etc.

It shouldn't be as simple as taking a certain figure and plucking a random multiple out of the air to value the company.

nompere

I value shares and businesses as part of my professional life.

I subscribe to a "cynical word a day" from http://www.cynical.ws/

Synchronicity is a wonderful thing, and today's word is EBIT.

"Earnings before Irregularities and Tampering"