How is the price of a business acquistion typically calculated?

Question

Lets say for instance, I owned a business with the following characteristics:

Last year turnover: £20,000,000
Last year net profit: £5,000,000
Value of physical assets: £1,000,000

Firstly, what other factors might be factored into the valuation of the company?

Secondly, what would such a business be valued at (and what calculations would take place?)

Thanks!

Answer 1

Essentially it's whatever you can get for it ..

NB> A major factor in putting a value on a 'high tech' or financial investment business is the Staff = if they are likely to quit and leave due to a change of owner, the business may have very little value above it's physical assets ..

Another major factor is the plans of the current owner == if you are the main driver behind the business and intend to quit / retire whatever after the sale, again the value could be reduced ..

On the plus side there are IP rights and Patents .. often a Business holding significant Patents can be worth MORE without the overheads of Staff etc.

Answer 2

Very roughly 3 to 5 years net profits. But there are other factors such as:
what is the future of the industry in which you are active
is the product you manufacture being made obsolete like the duplicating machine and, increasingly likely, the camera.
what's your future order book show
any bad debts in the offing
how much cash in the bank
Do you own or lease your factory/office premises.
will management stay on if required for a while.

Answer 3

It called IRV. First you need to know what rate of return on investment is for that business. if you take rate of return and divide that into NOI (net operating income) will give you value or you can take sales price x rate and it will give you income or take income and divide by sales price and come up with rate. What you are asking for is an appraisal and it can't be done here.