The All Important Valuation

There's numerous ways to value a business and the most important thing to realise here is that certain individuals have dedicated their life to the art and science such things. If CAD Partners had a dollar for every client who'd ever said to us 'I now realise I paid too much for this business' - well, let's just say - we'd all be on a yacht together in the Caribbean drinking cocktails and watching the sunset.

How much is it Really Worth?

The value of a business reflects one’s view of the future cash flows generated by the business.  This can be measured through a discounted cash flow, where the future cash inflows and outflows of the business are estimated and a discount or risk factor is applied to calculate their present value.

An alternative method is to use an Earnings Before Interest and Tax (EBIT) multiple, whereby the business’ underlying expected future profitability for a year is multiplied by a ‘multiple’ based on the sale price divided by the EBIT or similar businesses sold or for sale.  This concept is similar to estimating the value of a residential property by looking at similar houses in the areas sold recently.

Another way to look at it is - a business is worth what someone is willing to pay for it.

As the warning always says - don't try this at home.

It's too late to look back a year later when you're sinking further into debt or your new business is gobbling up more working capital that you can spare and say - 'I think I paid too much'.

Seek the advice of an independent valuer.

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