What is my business worth

What is the point of being in business? Most of the time, you are having to sort out problems created by other people, whether customers, suppliers, staff or the authorities. Sometimes, you make money; often you do not, and with all of that, you have to work hard, constantly re-invent your business, and take nothing for granted.

The accolade for most businessmen and women comes at the end, when you have created a capital asset, that is attractive to someone else, and that person is prepared to give you some money for you to go away, and let them have a go at what you have been doing.

How much should they pay. How easy it would be if you could refer a potential buyer to a central price list somewhere, where they could look you up, and read across to a column marked “Price”, or if you could invoke a magic formula that always gives the right answer.

Step 1 is to assess your buyer. Until you establish a good working relationship with them and trust them, do not get carried away by sweeping promises. It also always helps if there is an under-bidder.

Step 2 is to name your price. Normally, there will be a correlation with what could be earned from similar businesses, although in practice it is hard to get hold of reliable comparative data. It is as much an art as it is a science. However, most business people have an acute sense, even if it is not based on a scientific analysis. A business person will generally know what they would regard as a good offer, and what they would regard as an insult, without knowing precisely how they get there.

That narrows the range considerably, and sets the stage for some rational dialogue. If, for example, the business operates from its own premises, a buyer would want to know how much rent would be charged in the future: that might have the effect of turning an apparently profitable business into a marginal one, depressing its value as a going concern. If on the other hand, the business offers opportunities for new customers or new products, to what extent should the seller expect to see that potential reflected in the price.

Suppose that the seller persuades the buyer to pay more than the business is actually worth. Unless the money is all paid up front, which is unusual, the result may be bankruptcy for the business and for the new owner, with the seller receiving less overall than a more modest valuation would have realised.

Nicholas Ridge CTA advises on business valuations, and the tax rules relating to capital gains tax business gift relief; business property relief and agricultural property relief for Inheritance tax; and capital gains tax Entrepreneurs’ relief.

ABOUT NICHOLAS RIDGE

Nicholas Ridge operates as a Chartered Accountant and Chartered Tax Adviser under his own name, Nicholas Ridge CTA, in the Meon Valley in Hampshire.

For many years, Nicholas and Elizabeth Ridge Chartered Accountants and Chartered Tax Advisers ran a successful high street practice in West London. Their client base included individuals and businesses, and specialisms involved personal and business tax; not-for profit businesses; artists and professionals; and business start-ups

Their partnership merged with PK Group in 2013, at which point they moved to Hampshire