Valuing the Firm

Certain factors help to establish a ballpark price, such as what similar firms in your sector have fetched, and how extrapolations of their profitability, overheads, and debt compare. Your accountant will say it is arithmetic and there are formulas. Your lawyers will say it is the law and there are precedents. You and your buyer will know that the endgame is nothing short of poker, unless, of course, you are a publicly quoted company who can put a market value on your ever-fluctuating worth.

Always remember your strengths are also your weaknesses. If yours is a startup operation whose products are just about hitting the market, you have no track record. If yours is a mature operation, clearly things are getting long in the tooth and you need serious reinvestment. Don't be surprised either if in the closing stages the buyers suddenly turn their logic upside down and the value of your business with it. They are just sparring and will try to convince you that only their newly produced method of valuation is kosher. If the numbers are large they may argue with considerable forensic conviction because if they win, they'll save their client a small fortune and justify their existence.

At the end of the day it will all come down to what you and the buyer agree to. Before you even discuss the figure with anyone else, you must have worked out the bottom line figure for yourself. Consider what you have invested in money and time, and what profits you can expect shortly. Add your assets, both material and human, and your developments in progress. Try your valuation on your accountant. In negotiations never say "I guess my company must be worth X." Say "It is worth X for the following very good reasons." Don't be afraid to ask for a price down to the cent.

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