How to value a company

A

Anxious

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Is there any way to put a value on a company. I have an oppurtunity to purchase a per centage of the company I work in. It is medium sized with about 10 employees, t/o of aprox. 750K pa, creditors currently stand at 100k, debtors 200k,overdrafts and loans are 75k, assets are about 365k and goodwill is valued at about 60k. It is 3 years running, the first 2 years there was no significant profits and the 3rd year was about 45k profit. I understand the details are vague, is there anything I am leaving out? what other figures should I take into consideration? Ant thoughts are greatly appreciated.

Regards
 
How are they arriving at the Goodwill figure??
Is there any long term liabilities (loans, debentures etc)

Seems a lot of staff for that level of t/over.

What industry is it in and is it a stable industry (if any can be considered stable but you know what I mean?)

These are the questions I would ask myself....
 
Thank you for your reply
The goodwill figure is calculated at aprox. 1 month t/o.
There is an overdraft of 25k (Max), loan for the revenue commisioners of 50k and we have a 5 year loan on a machine worth 575k with 80k of it already paid off as way of a deposit (the 80k is listed in the assets). The actual number of staff is 8 with 2 being in sales and 1 is the MD/sales. The average weekly wage bill is €4750. The t/o was 750 - 800 last year but that was with 6 staff, our realistic figure for this year is 1million which is very achievable. I would be confident of the industry and would definitely see this as a long term thing.
 
Has anyone else bought into the company recently?
Are you happy to post the company's line of business?
If you want to see what sort of prices companies in your industry are selling for, a useful starting point might be:
(there are a number of free samples of their reports available on the site, so you don't need to subscribe).
Or:
[broken link removed] ($17.50)
Both these are US based, but valuation multiples tend to be broadly similar regardless of geographic location.
 
In small companies, watch out for a dependance on key individuals - What happens if one of the small team leaves? What kind of notice periods are they on? Are there non-compete agreements in place? Is there keyman insurance in place to cover illness/death of key persons?
 
Hi Anxious - you absolutely must take on this.

A good accountant will go through the accounts with you. Don't take the accounts provided by the owner as accurate even if they are audited. If you are making any sort of investment, you will need to get some form of independent examination of the books done by an accountant.

Owning a minority interest in a company is problematic. You have no control. The majority shareholder can decide not to declare dividends. They can go in a new direction which you might not be happy with. You will find it impossible to sell your shares to anyone except the majority shareholder. I have come across many cases of minority shareholders who can do nothing. The Companies Act defends the rights of minority shareholders, but it's of little practical value given the costs of legal cases.

You need to produce a balance sheet. The numbers you have provided so far make little sense to me. You have a machine which cost €575k with €80k paid off, but you have loans of only €75k?

Valuing the goodwill at one month's turnover seems like a figure picked out of the air.

Talk to an accountant. If you then choose to proceed, talk to a solicitor.

Brendan
 
Also, you have a loan "for the revenue commissioners" of 50k. Does this mean that the company borrowed to meet its revenue obligations? I'd want to know why it did that, or at least why they put it that way!
 
Can anyone recommend a good Irish accountancy firm for valuating how much a company is worth?
 
In theory there are a number of valuation methods (ebitda multiples, P/E, Discounted Future Cashflow, etc.). In reality value is how much someone is prepared to pay / sell for at a point in time. This varies. Just look at our property market over the last 20 years for the same house.

"Anxious" - what you really need to know is:
1. how much can you afford to pay for the business, assuming the business is your main source of income.
2. how cheaply can you buy the business, while justifying this to the other owners.
Then it is a balancing act between 1 & 2 for you. The other owners will need to weigh up what you are prepared to offer, vs their own views of the current & future business value (and potentially other interested parties).
 
If you buy these shares what are you actually going to get back. No point putting money into it if you are not going to get anything back. So for that reason investigate past dividends and future dividends and plans for sale of company that might generate profits.

From the little information you have provided I am going to guess that this company needs your cash more than offering you the opportunity to invest out of the goodness of their hearts. If this is the case then your money is at risk!!!

Also I would seriously question the debtors figure in particular as there may not be sufficient provision for bad debts.

As previously suggested get some due diligence done before proceeding.
 
One said:
Can anyone recommend a good Irish accountancy firm for valuating how much a company is worth?
Click to expand...

It all depends on the size of the company you are looking to get valued and the amount of money you have availble to spend.
 
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