Valuation factors

Key factors - main

Some of the main factors that have to be accounted for during valuation:

Financial

Accounting/trading information.
Sales, gross and net profits/reconstituted net profits.
Drawings or Director’s remunerations/pension contributions, depreciation, loan repayments and interest payments.
Rates of Return on capital employed.
Fixtures and fittings, current capital expenditure and net asset values.
Lease lengths, renewable leases, rents, rent reviews and rates.
Finance availability and the cost of borrowing/interest rates.
Market expectations within the sector.
Valuation multiples within specific markets/knowledge of niche markets.
Changes in market forces.
Rental incomes and yields.

Location

Location and surrounding developments.
Local, Regional and National competition/monopolistic trading positions.
Freehold commercial property values within the area.
Applicable licenses, trading hours and planning permissions.
Current activity within the industry and the geographical locality.

Property and Equipment

Freehold or Leasehold, and condition of the premises.
Extent of trading equipment and state of repair.
Appropriations: goodwill, fixtures and fittings, property and stock at cost values.
Scope, potential and improvements that a new enthusiastic owner may adopt.

Legal

Written and verbal agreements/contracts with both suppliers and customers.
Exclusivity agreements Patents Obstacles to entry Debtors, creditors, bad debts factoring/invoice discounting charges.
VAT or revenue investigations or staff disputes.
Staff wages, lengths of service, loyalty and key staff.
Loan serviceability.

Key factors - other

Other factors likely to affect the valuation:

Demand for the type of business.
How long established and customer loyalty.
Handover periods especially if the owner is the key man.
Knowledge of planned vendor exit routes.
Buyer motives and asset/liabilities of a purchaser.
Special circumstances
Owner or management run.