how do you value a business

[Mick Stockbridge]

I dont understand it very well, but when you buy machinery youre allowed tax relief. If you sell it before end of life then its liable for some of that tax relief back. Thats the way my accountant explained it.

 

I should have said "If you sell it you have to pay some of the tax relief back". My apologies.

[Quickthorn]

certainly for tree surgery....but for firewood i dont think the recession would have quite so much of an impact on the price giving the increase of firewood sales? thats assuming you have a good source of firewood

 

It depends whether firewood will follow general fuel prices or not, i'd have thought, especially other solid fuels. In a recession, fuel goes generally goes down in price as the economy slows, and if coal gets cheaper, perhaps people might decide to burn that instead of wood.

[Zenfordinner]

The net worth of a business is essentially total assets minus total liabilities.

[Quickthorn]

The net worth of a business is essentially total assets minus total liabilities.

 

That doesn't include goodwill (ie. the amount someone would be prepared to pay above and beyond assets - liabilities ). As firewood demand is so strong at the moment, perhaps the goodwill portion might be quite high.

 

It might be worth looking at what sort of return you're getting on your equity. If you do the assets minus liabilities sum, that's useful, because you can see what return you're getting for the equity you have tied up in the business: how much profit does the business make (profit after depreciation and your wages) from that equity, and is this profit more or less than what you'd get if you cashed it all in and put it in the bank?

[skyhuck]

That doesn't include goodwill ?

 

I would say "goodwill" is a saleable asset.

[firewoodman]

what do you class as liabilities?

[Kev Stephenson]

what do you class as liabilities?

 

If your processor is worth £30k but you still owe the bank £20k in finance (your liabilities) then your net worth is £10k

[Quickthorn]

If your processor is worth £30k but you still owe the bank £20k in finance (your liabilities) then your net worth is £10k

 

that's it..plus anything else you owe..credit cards, unpaid bills, etc.

[Zenfordinner]

Basically, liabilities are what you owe, assets are what you own (or is owed to you).

 

I did not mention goodwill, as it is a subjective matter open to negotiation. The old adage "something is worth what someone will pay for it" is relevent, especially during economically sluggish times. The three times the net worth of a business applies as a general rule of thumb, but is not necesarily applicable to small businesses- according to our accountant. Goodwill certainly has value but the key is someone recognising this and paying accordingly.

 

Any savvy person looking to buy into a business under current conditions will endeavour to buy as low as possible. It could be argued that the wanting to sell during said climate implies a risk to the buyer- although I think that a firewood business has as much, of not more, of a chance at doing well in the near and distant future.

 

If I remember correctly Mr. Winger broke down his business- sold off his assets rather than selling the business on. I imagine he went this route, as he could not find a buyer willing to pay the actual worth of the business,as a whole. A little research, and a few calculations, should give a rough idea of how much you could sell each item, and what would be left after paying any liabilities. Of course, this path would not gain any monies for goodwill, but, to reiterate, the amount of money that the goodwill of your business can command will depend on the prospective buyer.

 

Good luck in whatever course you choose.

 

I think someone already mentioned this, but I would say that now is not really a sellers market, in terms of equipment, as the more of anything available the cheaper it becomes (generally speaking), and the harder the times the keener people become about spending.