What is a business worth?

[blue-eye-boy]

I own 30% of our family business, and my dad 70%. Because of ongoing problems between us, I want to try and buy my dad's portion, I'm sure he will sell it to me. I know that it is much more complex than just putting a value on a business, and that a qualified person must do it, but roughly, how can I calculate what our business is worth now? I have the financial statements and the lot.

 

[Mars]

A quick indicator is to take your net profit and search for similar businesses that are for sale with the same profit.

I use http://aldes.co.za/ but it seems to be broken today :/

 

[rorz0r]

I generally use yearly profit plus net asset value as a rough guideline.

 

[IceDreama]

Try and project the cash flows for the next 5 to 10 years reliably and divide this by a discount factor.

The discount factor is usually market related and would be something related to your borrowings rate and if there are no borrowings, use the banks current borrowing rate.

Your business I imagine is not listed on the JSE or AltX so finding similar business will be difficult since you can't actually see their earnings. It would be easier to do your own valuation as you are the most familiar with your business.

I can explain further if you want some help, just send me a pm. Business valuations aren't too complex at all but are obviously very subjective and every person out there will have a different value if asked to value the same business.

 

[Freaksta]

We did this in our 3rd year of accounting, last year so it's half fresh in my mind... I'll just post what I remember,

1) The current value of the assets in the business (prob the least used way but a good start)

2) Sales multiples (meaning if your sales was 10000 for the year, and your sales multiple for your industry is 3, then 30000 is its value, also not really the best method)

3) Also a earnings(EBIT) multiple, but again you need someone to calculate the multiple, and a cash flow method.

Most likely the best way to figure it out is to just chat to you dad, or if you don't think that will go well, get someone to value it and make him an offer.

 

[FrankCastle]

Just talk to your dad and ask him how much he wants.
maybe you'll get a family discount.

 

[blue-eye-boy]

Okay thanks, will pull the data I can get, and calculate something. Haha to the family discount! Thing is, the money I pay him, must be something he can life with till he dies, which I dont think will be far into the future, he's really buggered.