Any accountants on board?
- Thread starter rsvdaz
- Start date
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The starting point is usually "How much do you want to pay for the company?"
I did some company valuations once, it was just the once, though. I was the FD and the board asked me to produce some valuations for a couple of potential targets.
Because my remuneration didn't depend on results, I wasn't overly concerned with producing the number the rest of the board wanted to hear and I wanted to make a point about the possible alternatives, so I gave them a range of values from about £3m to about £25m using many different valuation methods, then talked through the methodology and the reasons for the variance.
After about 30 minutes, when the sales director asked "which one is right", I realised I was on a hiding to nothing and suggested they get in an outside agency to advise them.
Possibilities include a multiple of turnover, a multiple of profit, a multiple of the asset values, the appropriate factor depending on market, age of company, willingness of directors to stay on, any possible synergies and savings, stability, order book... etc
So, how much do you want to pay for the company?
I did some company valuations once, it was just the once, though. I was the FD and the board asked me to produce some valuations for a couple of potential targets.
Because my remuneration didn't depend on results, I wasn't overly concerned with producing the number the rest of the board wanted to hear and I wanted to make a point about the possible alternatives, so I gave them a range of values from about £3m to about £25m using many different valuation methods, then talked through the methodology and the reasons for the variance.
After about 30 minutes, when the sales director asked "which one is right", I realised I was on a hiding to nothing and suggested they get in an outside agency to advise them.
Possibilities include a multiple of turnover, a multiple of profit, a multiple of the asset values, the appropriate factor depending on market, age of company, willingness of directors to stay on, any possible synergies and savings, stability, order book... etc
So, how much do you want to pay for the company?
MacB
Lover of things that come in 3's
- Location
- Farnborough, Hampshire
Yep, Norm has it in a nutshell, I've had a few of the scenarios he describes and have responded in a similar manner. Variety of valuations based on various projections, the hard cash value is generally fairly straight forward but the other stuff is finger in the air style. There are formulas you can use but none of them exclude the guesswork around future potential.
I've seen some disastrous results from a combination of factors but a failure to integrate successfully, or even understand sometimes, the aquisition seems to be commonplace.
I've also found that those asking tend to already have a figure in mind and just want you to support that.
I've seen some disastrous results from a combination of factors but a failure to integrate successfully, or even understand sometimes, the aquisition seems to be commonplace.
I've also found that those asking tend to already have a figure in mind and just want you to support that.
asterix
Comrade Member
- Location
- Limoges or York
Now I understand how Fred the Shred thought it was a bright idea to buy ABN Amro.
Archie_tect
De Skieven Architek... aka Penfold + Horace
- Location
- Northumberland
If it's anything like a consultancy business, a small company with directors who run everything themselves build up their relationships with suppliers and customers to keep the business going. When they go, so does the goodwill- leaving you with the mechanics of the business but you have to start from scratch building it up again, so be wary valuing it as a going concern.
well..i would like to pay as little as possible
im a director/shareholder with 20%..I would like to buy the other director out and gain the remaining 80%
we offer a design service.
I am the major fee earner, the 80% shareholder is the MD and im not happy the way things are run.
shrinking turnover and profit margin
delayed invoicing and slow paying clients
hes already past the stat retirement age and to put it bluntly past it..i however still have a good few years left in me.
i wasnt happy the way we became limited...which, in a nutshell, meant he gets profit out of the company twice..i can provide further information regarding this if you need be
im at a crossroads...do i walk away and start a fresh on my own or see if i can gain control/oust the md and turn things around where i am
im a director/shareholder with 20%..I would like to buy the other director out and gain the remaining 80%
we offer a design service.
I am the major fee earner, the 80% shareholder is the MD and im not happy the way things are run.
shrinking turnover and profit margin
delayed invoicing and slow paying clients
hes already past the stat retirement age and to put it bluntly past it..i however still have a good few years left in me.
i wasnt happy the way we became limited...which, in a nutshell, meant he gets profit out of the company twice..i can provide further information regarding this if you need be
im at a crossroads...do i walk away and start a fresh on my own or see if i can gain control/oust the md and turn things around where i am
twentysix by twentyfive
Clinging on tightly
- Location
- Over the Hill
Sounds like you may have him by the short and curlies. His cut always depends on you. So tell him you will b*gg*r off elsewhere if he doesn't take your offer (which can be any amount you are willing to pay).
asterix
Comrade Member
- Location
- Limoges or York
Some while ago I dealt with a guy who'd bought a haulage business. Unfortunately there was a practice in those days whereby such businesses had 'friendly' arrangements in which they would do each others jobs depending on whose tractor unit was best placed.
The upshot was that the business owed others rather a lot of favours not recorded on the visible accounts.
One scam of many in the transport industry.
The upshot was that the business owed others rather a lot of favours not recorded on the visible accounts.
One scam of many in the transport industry.
rikki
Legendary Member
- Location
- Limestone Coast, South Australia
What's the business worth without you?
That's how much you should pay.
That's how much you should pay.
How did that happen? If you were previously a partnership, did you not draw up a Shareholders Agreement when you incorporated?
You certainly need to resolve the situation. I was a commercial lawyer, not an accountant, but I regularly saw business owners who had fallen out and all you achieve by putting it off is to watch the pie that you are arguing about get smaller and smaller. All parties are convinced that they are the only ones doing the heavy lifting; and once mutual trust disappears, it's very difficult to get it back.
A couple of points if you do decide to go elsewhere:-
- you would not be able to take your customer base with you. Even if you don't have a written director's contract, that is an implied term.
- you can effectively force him to buy your shares. The constitution of most private companies gives a right of first refusal to the existing shareholders, but a right thereafter to sell them elsewhere. Of course you can resign as a director and keep your shares.
The best approach, IME, is to be absolutely straight with him. Tell him what you want, and why. If necessary, get someone you both trust to mediate/facilitate. Agree a reduced role for him with a scheduled earn-out, or even an outright purchase (although that might be difficult to finance). If you can't agree terms within a few months, go.
If we are talking big figures for turnover and value, you're going to have to bite the bullet and pay for professional advice. Don't base your future on what you can pick up on a cycling forum.
great advice everyone!
ASC - he was a sole trader..I wanted to move on..he asked me to stay and offered 20% equity...the "co accountants" recommended we go ltd as the partnership agreements were being drawn up..so thats what we did..
however...call it niave I assumed that the "co acoountants" were working for both of us...it tunrs out the sale of the old company to the new ltd co went through with the proceeds all going straight into partners director account and not 80/20 as I undestood it..meanin he gets to drawn down the account to get 100% of the old company proceeds and then when this clear offers is able to offer me his 80% so essentially i am helping him sell the company twice (or at least 180%)
its no a huge company....can potentially turn over 300k..currently 180k because of his leadership
i have someone who is willing to become a shareholder but not a director to help me with a possible buy out
ASC - he was a sole trader..I wanted to move on..he asked me to stay and offered 20% equity...the "co accountants" recommended we go ltd as the partnership agreements were being drawn up..so thats what we did..
however...call it niave I assumed that the "co acoountants" were working for both of us...it tunrs out the sale of the old company to the new ltd co went through with the proceeds all going straight into partners director account and not 80/20 as I undestood it..meanin he gets to drawn down the account to get 100% of the old company proceeds and then when this clear offers is able to offer me his 80% so essentially i am helping him sell the company twice (or at least 180%)
its no a huge company....can potentially turn over 300k..currently 180k because of his leadership
i have someone who is willing to become a shareholder but not a director to help me with a possible buy out
darth vadar
Über Member
Did you hear about the constipated Accountant?
He worked it out with a pencil.
He worked it out with a pencil.
Ah, ok. Then there is nothing unusual in what he has done. When a company is set up with assets already belonging to members, it is common practice for those assets to go in as directors' loans. Sometimes those loans have priority over dividends, or carry interest, sometimes not - it depends what is agreed. Looking at it that way, he put in the existing business which he owned 100%, what did you put in?
He has actually given you 20%. That is, 20% of whatever the business makes in its new format. Not 20% of his existing business. You are getting the 20% for nothing, so it doesn't seem unreasonable to me that he has first shout for the value of what he put in - provided that is what you agreed you were getting, because if you were told you were getting a share in what he had already built up, you plainly haven't. I think you need to go back through the documents and if need be get clarification from the accountants, who are now the company accountants i.e. not 'his' accountants.
So you value your future contribution at £120,000 a year turnover? Leaving aside the turnover/profit ratio, under the present arrangement you are getting 20% of £180,000 i.e considerably less. Of course, the fixed costs of running your type of business may be similar whether the turnover is £180,000 or £120,000, so the gross profit % will fall faster as turnover falls, but even so the simple figures suggest that you might be better off leaving.
You need to be realistic about this. There is a lot more to running a business than being the person who brings in the work, or even the person who does the work. Not many people are good at all three, because they are different skills. Do you have those skills? How easily could you find your own customers? Your own staff?
I think you also need to take a step back. It is quite possible that you have simply misunderstood the deal; as I say, from the outside, what has happened looks perfectly standard and you haven't been disadvantaged. If you reckon that you are worth £120,000 a year in turnover, there are other less disruptive ways to achieve what you want e.g a performance-related salary, options to buy his shares etc. Get all the facts in your head first then have another discussion with him.
What you can't do is just let it fester. That will waste months/years of your life and his.
ASC, thanks again for your comments.
Ok..the 20% he offered me was of the original company...this is what I accepted..when we approached the solicitor to draw up a partnership agreement it was suggested at this time we go limited..so I was expecting 20% of the business sale go into my director account.
Yes I value my future contribution turnover as £120K but I would also keep the current staff and take someone else on to replace him who is more productive thus increasing the turnover and by running the company more effiently than it is now also increase the profits.
yes I have the skills and good client relationships to continue bringing in the work and and to increase productivity. There are no options for future aquisitions of his shares, no exit strategy and no scope for pay increases as at this current moment in time it isnt even viable to sustain both our current salaries.
Its not going to fester...I have to do something..either get the chance to turn things around or start afresh.
Although I offered to buy him out yesterday, which received a very quick no as the response , no money was discussed when I get an idea of how much the company is worth I will speak to him again to make him aware how serious I am ..because I get the feeling he didnt yesterday
Ok..the 20% he offered me was of the original company...this is what I accepted..when we approached the solicitor to draw up a partnership agreement it was suggested at this time we go limited..so I was expecting 20% of the business sale go into my director account.
Yes I value my future contribution turnover as £120K but I would also keep the current staff and take someone else on to replace him who is more productive thus increasing the turnover and by running the company more effiently than it is now also increase the profits.
yes I have the skills and good client relationships to continue bringing in the work and and to increase productivity. There are no options for future aquisitions of his shares, no exit strategy and no scope for pay increases as at this current moment in time it isnt even viable to sustain both our current salaries.
Its not going to fester...I have to do something..either get the chance to turn things around or start afresh.
Although I offered to buy him out yesterday, which received a very quick no as the response , no money was discussed when I get an idea of how much the company is worth I will speak to him again to make him aware how serious I am ..because I get the feeling he didnt yesterday
