Business Valuation

Valuing a business is much more of an art form than a science, simply because value, like beauty is in the eye of the beholder.

A business that has immense value to one potential buyer may have very little value, or attraction, to another.

Your business manufactures and sells blue widgets. Your competition only has yellow widgets.

If the prospective buyer doesn’t care what colour the widget is, the two businesses can be directly compared, but if the buyer only wants blue widgets, your business is worth far more than the manufacturer of yellow widgets!

The over-riding principle is that in 90% of cases a business is bought for the future profits it will make, and the valuation calculation is an attempt to place a value on those future profits.

The other 10% of business purchases are for bought for lifestyle choices, a passion or an interest (think football clubs) or for egotistical purposes.

There are many different technical tools and calculations used to try and estimate value, but the real challenge is to identify the right strategic buyer and see the business from their perspective.


How easy is it for your customer to pay you?

One business I advised had succeeded in winning business in the Ukraine, and this was turning into a significant opportunity. The sales team were getting very excited!
The finance team were getting worried – payments were erratic, and very slow.

The Ukrainian government had imposed currency controls – you could not pay in “hryvnia” outside the Ukraine, and to pay in US Dollars you needed to get finance ministry approval for each payment.
That wasn’t easy for our customers, and was hampering our business growth. We established a subsidiary company in the Ukraine, so our local customers could pay us in the local currency. Business boomed and the customers were paying much more frequently.
Have you ever tried to buy something on-line, and noticed that your preferred payment method isn’t available? I’ve certainly gone elsewhere when that has happened to me.

Another client was having trouble collecting money from his US customers. We worked with the banks, and setup a special account, in the US, to take wire transfers from US customers. They didn’t have to make international payments….

How easy do you make it for your customers to do business with you, and how easy do you make it for them to pay you?