If I wanted to value a small business what is the best method ?
I am not a finance expert so a simple explanation would be appreciated. The business I am looking at is based in the UK, has been running for 10 years and has an average turnover of £500,000. Best year was £1,000,000, Worst was £350,000.
No fixed assets other than office equipment and one vehicle. However a very desirable client list.


    its a gamble
  2. mainwoolly
    Its worth what someone is willing to pay for it. Turnover is irrelevant. It's profits that matter. You can estimate a rough value of thebusiness as being the balance sheet total plus x number of years profits. x would vary depending on the industry the business is in, but take 3 years as a very rough idea.
  3. JAKE
    You fail to mention the profit margin and also the risk involved. As there are no fixed assets you will be buying mostly goodwill and if the business goes down you will have lost everything. As a general rule you should look to recover your outlay from the profits in five or ten years according to the risk.
  4. PAUL H
    There is a formula to be applied; a multiple of gross profit. The exact multiple would depend on the nature of the business - adjusted up/down to reflect the trading and g.profit trends over the last x no. of years. x would vary with the volatility of the particular market . Hope that helps
  5. Ivan R
    Hello, The answer to this is very much an Art not a science, I have run my own small business quite a few years ago. My understanding of this is as follows:- To calculate the approximate value of the business you have to try and place a financial value on numerous items & these might tangible items as well as non tangible. No.1 so you would need to value the business's fixed assets such as they are, so that would be vehicles, property such as an office building, computer & IT equipment, office furniture such as desks & chairs,etc,etc. No.2 Next you would need to consider what capitol you have in bank, in savings, in debits, in monies owing to you from clients or other suppliers, money locked up in shares,etc. No.3 You would need include the value locked up in any stock held by the company (goods not sold yet). And how much those might be worth. No.4 Databases & there associated datasets are actually VERY valuable, especially if the dataset is accurate & upto date. Calculate the value of any client database your company holds. No.5 Also dont forget to include a calculation of what the potential future profits might be for the next one or two years (projected or expected profits). Add numbers 1 to 5 together and that should give you an approximate figure. The best tool for doing this I suggest is to set up an Excel spreadsheet, why? because if you create formulas you can play around with the figures until you believe the results are the closest to the actual value. Hope that helps? IR

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