Business Valuations

Exit Strategy Consultants provide detailed and accurate company valuations; having carried out thousands of large and small business valuations we are proud in our art of accurately valuing companies. Valuing a business requires a thorough understanding and analysis of a number of factors.

Values are often significantly exceeded by creating competition with the right strategic buyer, when your marketing and targeting campaign is executed effectively. A valuation will seek to measure the trust the market has in a business and in its ability to create wealth (the goodwill). Goodwill is intangible, although the accounting definition is the difference between the purchase price and the company’s balance sheet assets (net assets). There are many different techniques for calculating the value of a business, such as industry specific formulas, asset based valuations, discount cash flow forecasts and dividend formulas. However, typically in unquoted smaller businesses, the most usual method is to use a multiplier of “adjusted” and maintainable profits. The chosen multiple is the number of years it is considered acceptable to generate a payback on the investment.

A sustainable profit figure will be assumed, often using last year’s net profit as a base. It is then normal to make specific adjustments to this figure to obtain the net profit to a buyer, rather than the one the previous owner may have enjoyed. This is called calculating the adjusted net profit. An adjusted EBIT or EBITDA may be used depending on sector. This is calculating the earnings before interest and tax (EBIT) or depreciation and amortisation (DA). This can include items such as salary or extraordinary or personal costs. Adjustments to the net profit might include ‘add ons’ such as costs for placing the business under management, additional premises cost if requiring relocation and investment required replacing old equipment.