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There is no topic about which greater differences of informed opinion may exist than the value of a business or shares in a private company.<\/p>\n
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This guide contains the following topics:<\/p>\n
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The value of a business is naturally influenced by the willingness of a vendor to sell and a purchaser to buy. It is usually assumed that fair value is a price at which a willing but not anxious purchaser might acquire the business from a willing but not anxious vendor.<\/p>\n
It is always worthwhile exploring the factors that motivate the buyer and the seller.<\/p>\n
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Factors that influence a buyer include:<\/p>\n
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Factors that motivate a seller include:<\/p>\n
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In assessing business or share valuations, the following usual methods are considered:<\/p>\n
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Two key questions need to be considered early on in the planning stages.<\/p>\n
It may well be that the succession plan needs to be \u2018fast tracked\u2019 for whatever reason, be it health of the owner, the owner\u2019s procrastination or sudden desire to \u2018quit\u2019 the business, or even an unanticipated approach from a competitor who expresses a keen desire to acquire the business.<\/p>\n
Given that we don\u2019t always have the luxury of the ideal succession time frame on our side, it\u2019s useful to establish the \u2018early yardage\u2019 factors that we should prioritise.<\/p>\n
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There are four key areas to consider when grooming a business:<\/p>\n
What you can achieve in the preparation stage primarily depends on the time frame chosen<\/p>\n
If less than a year is available to complete succession, it is likely that only housekeeping matters will be able to be addressed. To achieve a sustainable value difference probably requires a minimum of three years in most businesses.<\/p>\n
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Valuing the business is a fundamental element in the succession process.<\/p>\n
Not only does an early valuation provide an opinion to the business owner, it also reality tests the owner\u2019s view on business value. It is very common for there to be a gap, sometimes significant, between the owner\u2019s expectations as to value, and the commercial realities of what the market is prepared to and therefore likely to pay. This valuation expectation gap is best flushed out very early in the succession planning process as it often sets a \u2018stake in the ground\u2019 for the beginning of a business improvement programme.<\/p>\n
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