Business Valuation
SIGNUM BUSINESS ADVISERS PTY LTD
Team Training
BUSINESS VALUATION
8 August 2012
Introduction
The purpose of this paper is to introduce you to the concept of business valuation and show different types of the valuation.
Objectives
On completion of this paper you should have an understanding of the factors that drive value, different types of valuation techniques, and negotiations from different prospective.
Resources
Business Valuation seminar on 19/04/12 by David Cartney
Business Valuation
Although there are several formulas you can use, there are no black-and-white answers on valuation techniques. Business valuation is a mix of methodology and professional opinion.
You need to select the valuation methods that suites your purpose and the type of business (e.g. for manufacturer you might use the asset valuation method, for legal services – the capitalisation of income method, for exotics e.g. a web-based businesses – the value of specific intangible assets method etc.)
[pic]
Market for SMEs growing & changing ❖ Volume of business for sale doubling since 5 years ago mostly in the smaller end of the business size ($5-10 million) ❖ Values have been declining in PE ratio terms due to greater supply of businesses for sale (the boomers), partly due to increasing retiree pressure, and expectations on PE ratios have declined since GFC ❖ Fluctuating valuations leads to uncertainty in valuations – values have broadly remained a function of turnover, profit, cashflow, quality of assets and future potential ❖ A significant portion of businesses advertised are for less than 1 year’s earnings! ❖ More buyers are entering the market and this should eventually lead to firmer prices ❖ A well-developed market for a type of business or its assets, may exist but this tends to not be true for many SMEs
Fundamental aspects of the business which impact the business value Customers – depth of customer
Team Training
BUSINESS VALUATION
8 August 2012
Introduction
The purpose of this paper is to introduce you to the concept of business valuation and show different types of the valuation.
Objectives
On completion of this paper you should have an understanding of the factors that drive value, different types of valuation techniques, and negotiations from different prospective.
Resources
Business Valuation seminar on 19/04/12 by David Cartney
Business Valuation
Although there are several formulas you can use, there are no black-and-white answers on valuation techniques. Business valuation is a mix of methodology and professional opinion.
You need to select the valuation methods that suites your purpose and the type of business (e.g. for manufacturer you might use the asset valuation method, for legal services – the capitalisation of income method, for exotics e.g. a web-based businesses – the value of specific intangible assets method etc.)
[pic]
Market for SMEs growing & changing ❖ Volume of business for sale doubling since 5 years ago mostly in the smaller end of the business size ($5-10 million) ❖ Values have been declining in PE ratio terms due to greater supply of businesses for sale (the boomers), partly due to increasing retiree pressure, and expectations on PE ratios have declined since GFC ❖ Fluctuating valuations leads to uncertainty in valuations – values have broadly remained a function of turnover, profit, cashflow, quality of assets and future potential ❖ A significant portion of businesses advertised are for less than 1 year’s earnings! ❖ More buyers are entering the market and this should eventually lead to firmer prices ❖ A well-developed market for a type of business or its assets, may exist but this tends to not be true for many SMEs
Fundamental aspects of the business which impact the business value Customers – depth of customer