Exit Strategy Planning by John Hawkey

Author:John Hawkey
Language: eng
Format: epub
Publisher: Taylor & Francis (CAM)

SOME INTRODUCTORY CONCEPTS

BUSINESS AS AN INVESTMENT

Generally speaking, accepted business valuation methods place a value on a business by capitalizing its future cash flows or expected future profits. Whatever the approach, it is important for owners to recognize that business valuation should be based on the same objective criteria as the valuation of other investments and not on subject criteria.

TRANSFERRING VALUE

Business value will only exist if it can be transferred from vendor to purchaser. For example, if the price you ask for a sole trader business includes a goodwill value element, you will need to ensure that the goodwill value can effectively be transferred to the purchaser, rather than ‘walking out of the door’ when you leave.

BUYING A BUSINESS OR A COMPANY’S SHARES

When valuing a business for sale it is necessary to make the distinction between selling business assets (such as stock, plant, fixtures and fittings) and selling a company’s shares (where all assets and most liabilities of the company are usually taken over). In the first case you could be valuing assets only (that is, with no goodwill component), while in the second case you would be valuing a business in total and the issue of goodwill value will need to be addressed.

TYPES OF VALUE

Valuers usually qualify their valuations by stating the circumstances under which the value pertains, for example valuations will be on a ‘going concern’, close down or ‘fire sale’ basis. These circumstances will determine the presence or otherwise of goodwill value, while the value of fixed assets can be greatly reduced when they have to be moved from the productive environment of an operating business.

In the case of exit strategy planning you will, hopefully, be considering the value of your business as a going concern, but if there is any question of a close down as a possible exit option then you will have to be aware of the affect this has on most asset values. (See Appendix 10 on ceasing to trade.)

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