The Basis for Valuing Your Business

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Over the lifespan of any business, a valuation may be required for a variety of reasons including management buy-outs, shareholder buy-outs, debt restructuring and/or estate planning. A valuation of a business can be of benefit to the seller in advance of the sales process as it gives a realistic and tangible assessment of the valuation of the seller’s shares or interests in a company.

It is now quite common, especially so in the hotel industry that these business sales are conducted on a cash basis. An acquirer especially one in the hotel industry will focus on the company’s EBITDA (Earnings before interest, tax depreciation and amortisation) as a benchmark for the profitability of a business and will as a result base any valuation on a multiple of this measure. Given this knowledge, it is important from the seller’s perspective that they establish a normalised EBITDA, with costs:

  1. that are not associated with the day to day operations stripped out,
  2. non-recurring in nature, taken out also and
  3. not realistic to the running of the business from the eyes of the acquirer

In order to obtain a strong valuation, we would always recommend that you engage a professional who will independently and objectively assess both the qualitative and quantitative aspects of your business before arriving at the valuation.

Qualitative aspects that would be considered include the strength and size of your customer base, key management personnel that are at the core of your business and their knowledge base, along with analysis of direct competitors in your market place.

Quantitative analysis will involve the interrogation of the company’s financial information both historically in terms of audited financial statements and projected future earnings and cash flows. As you are selling your business, future projections are imperative and the gap between historical and future earnings are likely to be assessed for their reasonableness in terms of the overall process of obtaining a valuation.

What questions do you have?

For further information, or if you are considering valuing your business and require our advice, please do not hesitate to contact our expert team at Cooney Carey on 01 677 9000 or by email:

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    Posted on March 8, 2016 by Des McCann