What are some 'rules of thumb' for valuing businesses? [Video}

Posted by James Price | JPAbusiness on 21-Aug-2019 02:00:00

When it comes to valuing businesses – listed or private – you will often hear people refer to ‘rules of thumb’. 

Some will say the value of a business is:

  • ‘x times its revenue’ or
  • ‘x multiples of its earnings’ or
  • ‘a function of its after-tax profit’ or
  • ‘a function of its gross profit’ and so on.

These ‘rules of thumb’ tend to be industry based i.e. “a business in Industry A is worth ‘x’ times multiple of earnings” while “a business in Industry B is worth ‘x’ times revenue”. (I won’t repeat the actual ‘rules’ I’ve heard – I don’t want to encourage anyone to use them!) 

In this week's video I provide a practical example which illustrates why relying on rules of thumb is too simplistic when valuing complex businesses.

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Topics: Business Value, Video, business advice, Business valuation, Business advisor, business valuer, JPAbusiness, Parramatta, Orange NSW

How NOT to manage a business ownership transfer

Posted by James Price | JPAbusiness on 10-Jul-2019 02:00:00

Value can be destroyed overnight if a business sale transfer goes wrong.

A few years back we published an eBook and checklist designed to help people manage this transfer process, after an experience I had while conducting due diligence for a client.

My client was in the process of purchasing a building products business in Queensland, which sold to both the trade market and retail customers.

Contracts had been exchanged and a deposit paid by my client, but the sale was subject to the outcome of my due diligence.

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Topics: Buying a business, Free download, Business transfer, Checklist, business advice, selling a business, JPAbusiness, Parramatta, Orange NSW

Client case studies: Why do I need a shareholders' agreement?

Posted by James Price | JPAbusiness on 10-Jul-2019 02:00:00

If you’re thinking about starting a business with someone else, or you’re an existing business owner considering taking on an investing party or shareholder, I strongly advise you to create a formal shareholders’ agreement at the outset.

I have dealt with a number of clients over the years who have found themselves in very sad and frustrating situations because they have entered into shareholding arrangements without a documented and legally well-constituted agreement.

Relationships have suffered, friendships have been lost, and business performance and value has been severely eroded through distractions caused as a result of not having an effective shareholders’ agreement.

In this blog I’m sharing the stories of two clients and how the lack of formal agreements has impacted them.

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Topics: Business Planning, Shareholders, business advice, Business advisor, shareholders agreement, JPAbusiness, Parramatta, Orange NSW

Do I need a broker or advisor to buy a business?

Posted by James Price | JPAbusiness on 03-Jul-2019 02:00:00

I strongly advise anyone looking to make a substantial investment in a business to consider independent external advice, whether that comes from a business broker, business advisor or accountant, or another specialist.

That advice might be in the form of:

  • providing a sounding board as you determine exactly what your own aims are in buying a business
  • objective advice on whether the business or businesses you’re considering actually meet those objectives
  • providing an independent view of the value of the business you’re looking to buy
  • assisting you in the purchase negotiation process
  • conducting the due diligence process.

However, this is where my answer gets a little tricky, because not all brokers have the same level of experience, and some offer a form of service I don’t endorse.

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Topics: Buying a business, business advice, Business advisor, business broker, JPAbusiness, business basics, Parramatta, Orange NSW

Western Sydney new frontier for JPAbusiness

Posted by James Price | JPAbusiness on 13-Feb-2019 02:00:00

The JPAbusiness team is excited to announce that we have opened an office in Parramatta – the Western Sydney hub poised to become Sydney’s ‘second CBD’.

The Parramatta team will be led by Valuation Advisor Alex Dzang and will work closely with our Orange office.

Establishing a base in Sydney has been a natural progression for JPAbusiness, as we have experienced increasing interest from business clients across the Sydney basin. And with Western Sydney, in many respects, the growing heart of the Sydney metropolitan area – albeit still with strong links to country NSW – Parramatta was the logical choice.

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Topics: Buying a business, Valuations, Business advisor, JPAbusiness, Parramatta, Orange NSW

Succession war stories: the good, the bad and the average

Posted by James Price | JPAbusiness on 19-Dec-2018 02:00:00

Succession stories from the corporate world

The following business succession examples come from the international corporate world and have been well reported in business advice and human resources articles and blogs.

They provide some valuable lessons on how to – and how not to – plan for succession.

HP – The bad

Over the course of 15 years HP (Hewlett Packard) had seven different CEOs – each horridly replaced with the next.

At its core, the problem was that the incoming CEOs were not adequately educated on the innermost workings that made HP successful. They came in with sweeping changes that contradicted the soul of HP.

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Topics: Succession planning, business advice, Business advisor, business management, JPAbusiness

What are some 'rules of thumb' for valuing businesses?

Posted by James Price | JPAbusiness on 12-Dec-2018 02:00:00

When it comes to valuing businesses – listed or private – you will often hear people refer to ‘rules of thumb’. Some will say the value of a business is:

  • ‘x times its revenue’ or
  • ‘x multiples of its earnings’ or
  • ‘a function of its after-tax profit’ or
  • ‘a function of its gross profit’ and so on.

These ‘rules of thumb’ tend to be industry based i.e. “a business in Industry A is worth ‘x’ times multiple of earnings” while “a business in Industry B is worth ‘x’ times revenue”. (I won’t repeat the actual ‘rules’ I’ve heard – I don’t want to encourage anyone to use them!) 

Continue reading...

Topics: Business Value, business advice, Business valuation, Business advisor, business valuer, JPAbusiness

 
Disclaimer: The information contained in this blog is general in nature and should not be taken as personal, professional advice. Readers should make their own inquiries and obtain independent, professional advice before making any decisions, taking any action or relying on any information in this blog. 
 
 

 

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