Business Valuation

[ChristopherWilliamsBKK]

Does anybody have any idea what a well established business with very low overheads and a monthly profit of 75-100k (baht) is worth if put up for sale here - i.e a realistic price fair to both buyer and seller?

Thanks in advance for any advice.

[ChristopherWilliamsBKK]

Wow - not one estimate.

Useful and informative board this one!

[raro]

probably the question was too advanced for us

I actually opened your post a couple of times and thought....hmmm.....what to answer, probably I would need more info such as what kind of business, customer base etc.

In general, yes, you can sell any biz if the price is right. Usually a multiple of the monthly profits and the assets are taken into account. Also a question you may ask yourself is how much would YOU pay for this business if someone would offer it to you. What is the reason why you are selling it. What is the reason why someone would buy it?

...and so on...

[ChristopherWilliamsBKK]

Thank you for the reply mate.

I realise its tricky - hence the question.

Without wanting to explain too much (for obvious reasons) this is a business that is genuinely doing very well (unlike most businesses here which are sold as the owners are losing a lot of money and try to recoup) and the sale is a lifestyle choice.

So with this in mind - would 2 to 3 years profits sound about right?

[palm]

Thank you for the reply mate.

I realise its tricky - hence the question.

Without wanting to explain too much (for obvious reasons) this is a business that is genuinely doing very well (unlike most businesses here which are sold as the owners are losing a lot of money and try to recoup) and the sale is a lifestyle choice.

So with this in mind - would 2 to 3 years profits sound about right?

10 to 15 months of profits if you are lucky, especially if it is a business that is easy to copy with little or no assets.

So even just 1 million baht is a high valuation.

Edited April 10, 2011 by palm

[ChristopherWilliamsBKK]

^Thanks for the input.

[Sunbelt Asia]

Normal valuation is set at 2 and a half times the annual owner's discretionary cash flow (ODC) . Generally it is the pre-tax earnings of the business before non-cash expenses. Other factors to include when determining owner's discretionary cash include net ncome, owner salary, depreciation, interest expenses, non-recurring expenses and owner perks that are written off such as trips, car etc.

Another way to look at owner's discretionary cash flow (ODC) is the amount of money a new owner is expected to be able to take home out of the business annually.

In order to determine the ODC take the business pretax earnings and add non-operating expenses then subtract non-operating income. Add in unusual or one time expenses and subtract non-recurring income. Then add depreciation and amortization expenses as well as interest expenses. Deduct interest income and add a single owner's total compensation. Adjust any other owners compensation to market value.

The valuation of the business would then be 2.5 times this figure.

Sunbelt Asia's professional brokerage fee is 10% on the selling price if we introduce a buyer who does his due diligence and acquires the business.

[sunbelt][/sunbelt]

[SGD]

2.5 times pre tax earnings ? you're having a laugh for most businesses. Far nearer to annual profits for many and anything above that needs to be supported by realistic future growth (not fiction as is often the case), the entry costs for a competitor, reliance on one or more customer who could cripple the business if they went elsewhere and the elasticity of the business to economic changes. If location is paramount, then the lease and renewal terms will form a high factor in the valuation.

Also, where is your break even point ? The higher it is, the less valuable the business as it is a higher risk. A business with a 5m turnover but which has costs of 4m is likely to be valued at much less than a 2m turnover business which also makes 1m profit unless significant fixed assets are included in the sale price. Goodwill is a highly overrated commodity when reviewing Thailand based business valuations.