Valuing Your Business for Sale

Establishing an objective market value for your business is not an exact science, and can fluctuate depending on the kind of business you own and why you need a valuation done. There are a number of aspects to take into account, ranging from the book worth of your assets to a number of indefinable elements. How much your business is worth will depend on an in-depth analysis of your company’s cash flow, your previous and more recent earnings, and how viable your business will be long-term. Ultimately the value of your company will depend on its ability to make a steady profit.

Using LINK Business

The team at LINK are responsible for the process of purchasing, divesting, and facilitating the sale of privately-owned businesses. We have a proven track record of successfully enabling the sales of over 200 companies throughout South Africa, Australia, and New Zealand.

LINK’s inclusive database supported by the statistical information we gather, and our access to a number of industry-related databases, can show us how much your business is worth and how profitable it will be in the future. We use the PE (Price to Earnings) Ratio, which can vary depending on economic factors and how the market is feeling at the time.

While most company valuations focus on how much your business has earned in the past, using the PE Ratio is not always the most accurate gauge of a company’s value. Robust, but under-performing resources and revenue streams that can be affected by price to sales, can also be key to determining your company’s true value.

LINK’s experienced and innovative team have produced an industry-specific methodology that is based on “real world” scenarios. We believe the way businesses are valued should identify with and be substantiated by market evidence and factors that are specific to that particular industry.

Traditionally there are three ways a company can be valued:

•    Income based
•    Asset based
•    Market based

At LINK we take all three of these factors into consideration when we do a valuation on your business. We take an impartial approach that is centered around our extensive industry experience and equivalent sales statistics, giving you what we believe is the most correct indicator of the how much your company is worth.

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How LINK value your business

At LINK we use real-world industry-related data as the foundation for how we value your company. In general we operate under the Advisory Engagement Standard No.2 (AES-2) that has been documented by the Institute of Chartered Accountants that deals with the process of independent business valuations.

Broadly, we use the Advisory Engagement Standard No.2 (AES-2) as set down by the Institute of Chartered Accountants and covering independent business valuation engagements.

Different methods will be used subject to how big or small your company is, with statistical indications and real-time data from actual industry-related sales being the most precise indicator of the value of your business.

The Valuation Appraisal Opinion

When we establish the sum value of your company it is normally given on a Going Concern basis.

How sustainable your company’s income will be centered on both previous and current earnings, that is a guarded expectation from the purchaser of how the business is expected to perform over a set period of time.

The team at LINK will put together a conclusive report based on all facets of your business, including:

• All available financial documentation.
• The values and principles of the business culture and its infrastructure.
• How relevant the company is to its segment in the market.
• An in-depth assessment of any risk factors both in the company and the specific industry.

Our estimation on your company’s Business Value will be correlated with:

1. The industry standard multiplier on true earnings. This multiplier is determined by the market and fluctuates according to identified risk factors, how much your company is expected to earn in the future, and assessments done in the past.
2. The reasonable market worth of your company’s unencumbered assets, being equipment, fittings and fixtures, debtors, etc. which is equal to how much your stock is worth historically.
3. Goodwill/Intangible Assets. With Goodwill not being set in concrete and how this affects the value of this asset, we use a methodology that is based on the unique circumstances of each individual business. There is no set way to estimate a company’s worth, as each business has its own particular characteristics when it comes to tangible and intangible asserts. At LINK we realise this and have the expertise to establish the required rates of return (ROI) for business investments that have a number of risk factors.

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