Most businesses are valued using one of three approaches: asset valuation (toting up the assets on the balance sheet); the market approach (earning potential based on theoretical market demand); or income valuation (projecting cashflows, then discounting at some rate) — the latter of which tends to be Kiwi companies’ favoured approach.
In the case of Working In, arriving at a figure involved the tried and trusted method of taking EBITA (earnings before interest, taxes, depreciation, and amortisation) and applying an industry-based multiplier. Not quite as simple as it sounds, however. Working In has a large online component; arguably it’s also in the media space by virtue of the employment expos it organises; and it is a service company.
Other lessons? “Valuing and selling go hand in hand,” says Roberts. “You need to demonstrate that the buyer will get a return on their investment. What we learned is that it’s important to have all your processes and systems, especially your financial systems and accounts, in tip-top order. You need to be clear and transparent and you need a top accountant; being audited by one of the top-tier firms before you enter the process is fantastic. We had that.”
Nigel Bingham of Pencarrow Private Equity seconds that tip.
The more experienced your professional help the better, he adds. “I’d approach one of the big four — someone who is regularly helping business owners to sell their business. They have a much better feel for the market.”
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