Putting A Price On Your Business

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Putting a valuation on an existing business can be a tricky proposition. When buying from an owner who has decided to move on, it’s important to take several things into consideration so you aren't rebuffed for making an offer that’s too low, or end up losing your shirt by paying more than the business is worth.

Looking at assets is a good starting point, such as physical ones like machinery, fixtures, inventory, etc. But just as essential, there are also intangible assets to consider such as customer relationships and the employees. In the case of a restaurant, is it run down? Is the menu right or does it need to be reworked? What about location? Is there an existing clientele that will continue to come?

In addition, a potential buyer should estimate a company's earning potential. Is the market saturated, or is there still a niche to be filled and can the business grow and develop? If so, the business is likely worth more. Competition is an issue: the stiffer the competition, the lower the valuation. And of course, earnings have to be considered. If the business has been around for a while and has an earnings track record, it’s easier to project what the revenue stream might be in the future.

Arnaud Curtat, founder of the Blue Pumpkin, also says it is important to look at the unique selling point of the business. What does it offer that sets it apart from competitors? If that’s not clear, you might want to lower your offer, or reconsider. Alain Dupuis, who’s done business in Cambodia for decades, has a simple formula: “I look at the bottom line,” he says. He uses the EBITDA metric, or earnings before interest, taxes, depreciation and amortization, which indicates the operational profitability of the business. He’d pay a high multiple of EBITDA, maybe seven or eight times, if the company has potential for development and might lead to other opportunities, a lower multiple if it doesn't. “Get advice from investment bankers,” he says. “I've made so many acquisitions in my life, and I always get professional advice.”

Valuating a business can also be an emotional matter. Sellers have often put a lot of blood, sweat and tears, as well as their own cash, into a business and might well put a higher value on them than they really deserve.

By Kyle James for B2B Cambodia