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Company Valuation in a ‘down’ market Last month I enjoyed sharing with the Public Practice group of ICANZ Auckland.My main theme was that business valuation is not merely an accounting exercise. All appraisals must involve many subjective judgements and value will be driven by many other factors apart from the figures and the financial accounts. Further, I proposed that curiosity was the most important attribute of a valuer striving to produce a credible and defensible opinion of value. Underpinning all sound valuations is the collection of full information ? both operational and financial and then analysing these facts in relation to the future performance of the business and the sustainability of historic earnings. Most of these factors will not appear on the financial statements, e.g. key personnel, supply contracts, security of tenure, competition, legislative / technological changes, etc, etc. Only by asking lots of questions will the appraiser achieve a rounded picture of the enterprise. Intangibles generally do not show on the Statement of Financial Position yet currently account for over 72% (on average) of the total value of the businesses we sell. Some intangibles are transferable, some are not. This impacts on value. And in the SME world the appraiser needs to be constantly conscious of the possible presence of personal goodwill. Past earnings are no guarantee of future performance. The prudent valuer must factor in the impact of the present economic recession on the subject business and guesstimate the likely time before we have an upturn. This will need to be accounted for in the profit projections or the capitalisation rate adopted ? but not both. If you would like a copy of this paper please email us (info@clythbiz.co.nz) and we will send you a copy. Corporate life vs business ownership The current economic downturn has seen an increasing flow of ?corporate refugees? considering business ownership. The transition is not easy. In the corporate world employees enjoy regular paychecks, paid holidays, perks and benefits, and it looks good on their C.V. The downside is heavy workloads, annoying bosses, boring work, waste-of-time meetings, and frustrated decision-makers. We interview many potential buyers suffering corporate burnout who will relish the challenge of owning their own business, the opportunity to build real wealth with no cap on their earnings, the independence to make their own decisions, and the prestige and freedom to build a lifestyle they control themselves. |
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