Welcome. Business Valuations. Agenda. Why do your clients need valuation advice? How do you value a business? New on-line valuations tools Case study - valuing an SME business Client applications and firm benefits. Some SME Market Statistics.
Neil and Jacquie own a chain of successful car dealerships, which are managed by Neil and their son Cameron, who has been groomed to one day take full ownership.
Neil and Jacquie have completed their family business succession plan to protect both the interest of Cameron and Clair, their daughter upon handover. The will pass full ownership to Cameron on the understanding that he will source an independent valuation of the business to establish a fair market price for Clair’s 50% share.
Steve and Sharon’s business succession plan includes selling equity to Adam, a long-term trusted employee.
Steve and Adam agreed that Adam is required to grow profit and value before he can exercise his option to buy shares in the business. They have agreed to have the business valued today and any future increase in growth will be shared equally.
The legal documents used by Steve, Sharon and Adam through the transition process include employment and incentive, option, share sale, shareholder and buy/sell agreements.
How do you determine the profit multiplier?
Business Capitalisation Rate Calculator
Valuing an SME business
Not ready to retire, wanting a staged exit
Initial Transition Event
Principals selling 30% (3 x 10%)
Remuneration of CO’s
$220k x 2
Grant option to buy June 06, exercise July 07
Remuneration of FO’s
Grow income to $4.2m, improve profit to 12.5%
Average of CO’s
56 & 58
Performance bonus entitlement $20K
Age of FO’s
Parties agree to share growth in value equally
Business Value Gap Calculator
Danielle and Brad want to sell their newsagency in 3 years.
Their projected retirement assets require a business value of $800,000. Their business is currently valued at $500,000 based on a net profit on $125,000. Their concern is the difference in value.
Danielle’s and Brad Value Gap is $300,000. They need to increase their profit to $200,000 ($75k increase). They have identified that by selling stationery to their sons primary school they can increase sales and profit.
Allen is an accountant with annual practice fees of $600K. He has commenced his firm’s succession planning process by segmenting his client base. Allen’s largest business client represents 10% of his annual fee income. The client is a family business with the son likely to take control of the business when his parents retire. This is expected to happen within the next 2 years.
The concern for Allen is his lack of control over his client’s generational succession.
In particular, Allen does not have a strong advisory relationship with his client’s son. In fact the son goes to a competitor for professional advice. Allen faces a potential loss in business value if the client changes business advisers.
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