What's in a name?

What's in a name?

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A client of mine is ceasing trade and has some interest from others wanting to purchase the business.

She has been told by another accountant that the normal value of the business would be 1.5x net profit. This seems made up to me as I've been on valuation courses before and I know valuation isn't that simple.

Briefly she is a sole trader retail shop earning say £10k net profit (t/over £70k). My gut reaction is she should take whatever she can get, but I'd be interested to hear from anyone with a view on the multiple and whether the name would be worth anything?

Many thanks

Replies (3)

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By Steve McQueen
11th Jun 2012 14:32

Something is worth whatever someone else will pay for it...

If your client can get anything, take it!

Typically, OMB's sell for around x3 adjusted net profits before tax, plus working capital, but your question suggests that the vendor is selling the name only and given the size and nature of the business in question you are not going to be able to get meaningful benchmarking data to value a name.

As such, tell your client that the name is worth whatever someone else will pay for it... but if they want a starting price how about £10,000 - that's what most IP's use as the valuation if you want to buy back the name / business on a phoenix.

If it is the whole business, have a look in Daltons Weekly at comparable businesses. This will give you a fair benchmark of valuations to compare against.

Regards

Steve

Thanks (1)
By The Doctor
11th Jun 2012 14:55

Great
Thanks Steve - really appreciate that advice

Thanks (0)
By Steve Holloway
11th Jun 2012 15:27

I sold a shop like that a few years ago ...

and got about £20k for it but there was only one buyer in the loop with fairly unique circumstances. With micro businesses there is no formula ... you just have to make the best case possible, advertise it and see what pops out of the woodwork. I am a big fan of using a sale agent as a number of times they have found buyers for businesses which I thought beyond hope. The small independent ones will be more flexible on fees as these are hungry times just now and if they get your client £15 or £20k against £10k and take £2.5 for themselves then everyone wins.

Thanks (1)