# Valuing a Company?



## treebogan (Nov 19, 2011)

Hello

The time has come for my Business partner and I to go our separate ways.

How do you value the company less equipment? Is it based upon a percentage of turnover or net Proffit?

Many thanks

Mike


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## CUCV (Nov 19, 2011)

Tell us more about your business, there are many considerations. I have seriously considered buying several companies over the past 10-15 years. Most have wanted a years gross but I found that unrealistic for most of them. What exactly are you selling, well known name? contracts? steady work? A variety of examples of what I have seen, 2 million for 2 million gross, 100k for 140k gross, 300k for 300k gross, 2.5million gross for 300k, 2.5 million gross for equipment cost.


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## treebogan (Nov 20, 2011)

We effectivly have two Companies,one is Landscaping and the other Tree care.

We set up two companies because we were unsure of the demand for Tree care around here.However from the start the Tree work out performed the landscaping to the point of subsidizing its activities for two years untill I stopped it.

This year the Treework has paid the finance on the landscaping gear.

The annual turnover is about $400K we have not made a real proffit in four years.Book proffit yes,but that did not translate into a surplus of funds in the account at years end.We work for wages paid from the Company.

I am the Treecare side,in addition to climbing/fixing/recruiting and looking after staff,I own the Chipper,Saws,Climbing kit etc.This side has a turnover of about $300K per annum,however the landscaping sucked away the ability to replace equipment.

We have no staff now except myself.

Value of the Treework in machinery is about $25K on a good day.

I also own 50% of the Company,my business partner 45% and the Office Guy 5%.
He ownes the Domain name of the company on the internet,my name is on the Phone Bill.

Almost all of our Customers are Domestic Clients,we have no Contract work.
Work flow is steady for 10 months of the year.
Hope this helps,I live in Norway so I have roughly converted the ammounts to US$


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## StevenBiars (Nov 21, 2011)

The answer depends on one of three things:

1.) Are you buying his share?

OR

2.) Are you selling your share to him?

OR

3.) Are you both selling out?


The reason I say this is because the valuation greatly depends on what undertaking is going on. For example, if you were to buy his share, that share would only be worth his percentage of ownership in the equipment, plus his wages for a set number of years. Generally speaking, this number usually ranges from 1 year to 15, depending on how long the business has been established and how financially strong it is. If the business is reputable and well established, there is an additional financial component for "goodwill" and the reputation associated with the business.

If you're both looking to sell out, a well established business can bring a considerable sum, even if it isn't particularly profitable. Suppose that both businesses combined generate $700,000 in sales, and out of that, you're able to pay you and your partner a salary of $35,000 per year. You would base the asking price off of a multiple of the cash flow available to pay salaries and reinvest in equipment.


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## treebogan (Nov 21, 2011)

1) I am buying his share.He accepts his 40% to be payable in Machinery.He is going to continue landscaping.

He wants a offer for the Company,name,goodwill and web domain.He owns the Web domain.

From what I have seen,goodwill counts for very little in terms of Dollars.Its not as though you go to the same folks every year for years and do the same work for the same or more money.


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## ForTheArborist (Nov 21, 2011)

Rule number 1# is always - Something is only worth how much somebody will pay for it. 

In general to a person with little money or credit, something may be worth less than to a person with more money and credit. A person with more money may sit until a buyer comes or just not sell.

Your seller may NEED money more than want it. That may make the price less for you. If he doesn't care if he sells it or not, the price may stay high for as long as he likes.

And consider how much love their is for the business too. That's string that may keep the price high if there is a lot of genuine passion for the business.

I've always heard that the value of a business is roughly 3 years total average profit taking into consideration what needs to be spent on the business to bring it back up such as cost of repairs or replacements. That is a rule for a genuine business though in mainstream society. I doubt that is what you would actually have to apply to your situation. IMO I would assume much less than 3 years plus material costs like equipment etc.

Also consider the market in regards to how the business can possibly hold up in your particular area. Maybe there is or isn't a factor that will increase or decrease business in the future. Also consider that nothing goes perfect forever, so take into consideration that costly problems may arise in the next 1-3 years, and that cost then decreases the profit value of the business.

It then just comes back down to straight up "What can I get out of you?" and "What will you give me for it?" 

Justify your case. 

Listen to the other side's case. 

Take it or leave it.


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## treebogan (Nov 22, 2011)

Thanks very much for your reply.I appreciate your input and insight.


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## conlan (Feb 8, 2012)

I know two large companies that have been bought out and the price was as follows: half the annual revenue, plus market value for the equipment. So if the annual revenue is $400,000 and the equipment is worth $50,000, then the selling price of the business is $250,000. How does that sound?


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## RAG66 (Feb 9, 2012)

conlan said:


> I know two large companies that have been bought out and the price was as follows: half the annual revenue, plus market value for the equipment. So if the annual revenue is $400,000 and the equipment is worth $50,000, then the selling price of the business is $250,000. How does that sound?


 I have seen equations like this too. I feel it is more real world than the 3 years of revenue equation. In our industry it would be hard to see anything other than the equipment value because our clientel is usually a one shot deal. You come to a home, remove a tree, other than a referal your done. I do have repeats but only the ones with lots of trees.


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## leeharris13 (Apr 3, 2012)

*Same question but different info*

What if your company had 60% repeat / referral business and or was growing. Does this add anything to the equation. Numbers if you need them from last year were 350K and 22% growth.


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## a_lopa (Apr 3, 2012)

50k to him or i would liquidade,Its all your gear!


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