Valuing a business

[Mchalehs]

Where do you start valuing a business?

It is 25-30 years old well established agri business with a good loyal customer list.

Hasn't really got any assets as its a rented property and everything else is years old and well paid for, everything works as they should but all is dated and written off.

2 employees
Good customer list
Years of trading
Trustworthy

Where do you start

TIA

 

[Steevo]

Much of the value depends how many customers stay with the business to its new owner. I would think there would be a clause that sets a price and an adjustment of that based on customer retention over the following 12-24months.

 

[7610 super q]

Nothing. I've never really understood the idea of buying a list of customers, which you could gain for nothing, if you started up anyway.....

 

[Agrivator]

Does its annual accounts give a guide.

 

[Bloders]

a notional amount but not that much.
Are the existing customers loyal because of the people, ther service or the product?
If the first two, a new owner can screw that up in a matter of weeks. The third is a little different, but for me, the first two are primary.
Not sure if your buying or selling. Will the current owner stay on for 12 months (say) in which case a generous salary to that person could be enough.
If the kit is fairly old, it could be a liability.

Flip side, get an enthusiastic team of people, correctly incentivised may do just as well in 12 months time without the "gift" of the customer list...

 

[kill]

May only be worth something if a collosal profit is shown on the books. If not just do what I done with my fencing and hedge laying business 10 years ago or so and give it to an employee and shake his/ her hand and wish them well and help them when needed , so you can concentrate your time elsewhere.

 

[Smith31]

If there are no assets/property, then in reality it is worth very little. There is nothing that it will sell that can't be purchased off the internet.

What is the average age of the existing customers? will they be retiring soon?

A hardware/tool shop near us has recently closed down after 30 years of trading. In years gone by it supplied the council, builders, university etc . Unfortunately, Screwfix and Toolstation alongside the internet made it unviable.

Trading from premises and employing fixed staff makes most retail business uncompetitive when competing against the online traders.

 

[Flat 10]

1 years profit? I agree if you are buying paying the outgoing owner a salary/bonus whatever for working 1 day a week say for a year to ensure smooth transition/customer retention is a good idea.

 

[Sussex Martin]

5 x net profit.

 

[towbar]

Any agencies or franchises for specific products. Some multiple of profit

 

[7610 super q]

And what is the 'product' ? spud round ? horsey hay customers ?
Weapons grade plutonium ?

 

[smcapstick]

No assets = no value.

EDIT For a small-scale business. You pay for the man, not the name. Remove the man and there is literally nothing left.

 

[Donkey Oaty]

5 x net profit.

You would work for nothing for 5 years???

 

[Sussex Martin]

You would work for nothing for 5 years???

No, you confuse net and gross, net profit is after all costs including salaries.

 

[David.]

As a customer, I find it mildly offensive that my loyalty is for sale.
The new man has to prove himself.

 

[towbar]

No assets = no value.
.

Software business often has little or no assets could be worth $$$

 

[Old Boar]

Half way between what you want and what they are willing to pay. Goodwill has a value, especially if the name of the company is continuing. It the new guy loses good loyal customers, then tough, he does not know the business.

 

[outofthefryingpan]

You would work for nothing for 5 years???

I believe you work in the same industry as me - isn’t this exactly the sort of terms that businesses are sold on? Maybe not 5x though

 

[smcapstick]

Software business often has little or no assets could be worth $$$

Only if the software business has a unique and valuable product, such as an app or program. They may not exist to the touch, but they are very real.

A service industry, such as agricultural contracting, has no product. It’s labour with tools. If the fixed assets (in this case, machinery) are worn out and the contractor wants to retire, there is no value remaining in the business.

A name on a bonnet is nothing but a messy sticker if the owner of the name doesn’t own the tractor any more.

 

[Turra farmer]

5 x net profit.

In your dreams I'd think