Valuations for Acquisition, Investment and Divestments_Brickstone Africa

Valuations for Acquisition, Investment and Divestment

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Brickstone Partners team conducts cashflow valuations for companies spanning a plethora of industries in Agriculture, Heavy Industries, Commercial Developments, Housing, Transport Infrastructure, Energy and Natural Resources.  Our team is often contracted to evaluate a company’s books and determine the valuations for shares of the company. Brickstone Partners can recommend what our client should offer investors in terms of equity stake or even the Enterprise Value of the entire company.

It is important to note that Project Finance involves a corporate sponsor investing in and owning a single purpose, industrial asset through a legally independent entity financed with non-recourse debt. The future cashflow generated by the product and service offerings of a company, the market and team and much more will determine how to value the company. Factors such as the following should be considered in your valuations, including, but not limited to:

  • The Cashflow potential of company’s products and services
  • Scalability of products and services in the medium to long term
  • General market overview and future analysis of the projects
  • Historical performance, with financials adjusted for off-balance sheet issues
  • Pro forma and future looking projections of its services
  • Fixed Assets such as land, buildings, intellectual property
  • Liabilities such as outstanding debt, unpaid taxes
  • Management team and Governance

In addition to the above company-specific indicators, many will also look at similar companies in the same transaction conditions that have sold or are in the process of executing a sale whether if the entire company is up for sale or just a part of it (like selling shares or units).

Valuations for Startups vs. Established Companies

One of the difficulties to overcome for any startup project, especially those in need of capital and fund, is to value their company when there is little they can hold on to. A start-up project company most likely doesn’t have historical numbers. This essentially means the business owners cannot forecast with certainty what their future revenue will be as this is mostly determined by previous financial records. It is important for startup projects to not get overwhelmed with their valuation but to have a realistic approach to the value of their business by putting themselves in the investor’s shoes.

Many African Business owners often want to sell their business but have no idea how much they can expect to sell it for. If you’re genuinely looking to sell your business, it’s important to understand that a business buyer is looking for clear and objective facts that will give them the confidence that your business will be a solid and profitable investment going forward.

We are here to help you understand a fact-based approach to business value. Following are six primary areas that are important to help the valuation company quickly assess the value. This preparation is important.

Six (6) Key Steps

Here are six key areas to begin to focus on making the valuation process to go well. Since no two businesses are alike, it is crucial to have a third party that will objectively look at your business as a whole. Financial performance, employees, operation systems and other proprietary characteristics will objectively determine the true value of your company.

1. Prepare Your Financials

The step to discovering the correct value for your business begins with preparing the company’s financial statements. Make sure that your books are current including that all expenses and income are entered correctly. Ensure you hire a Chartered Accountant to help prepare your Profit and Loss, Balance Sheet and Cashflow statements.

A quality business valuation and the business purchaser will need to see the financial records for the past three to four years

2. Determine the Asset Value of Your Business

One of the tricky parts of the business valuation process is to determine the value of your assets.  Sometimes it is necessary to have an Estate Surveyor and Valuer and other times it is less difficult to decide on.  First, you must estimate the replacement value of the company’s tangible assets.  The replacement value is the cost that someone would pay to purchase that asset in the same condition sitting in the same place.

Assigning the value to intangible assets like patents and trademarks can be tricky, and it may be best to consult with a professional appraiser. Most intangible assets are valued as part of the “goodwill” or “blue sky” of the business.  This means that the value of these intangibles comes primarily from the profit that those intangibles provide the company.  This means that the intangibles may not be valued separately from the business as an asset. While asset valuation gives you a clearer picture of the book value of your business, it does fail to reflect the value of your company as an on-going operation and earning potential.

3. Prepare a Financial Forecast

A business financial forecast is an important piece of financial information often used by investors to assess your business’s stability before they agree a valuation with you. A good financial forecast must be based in fact, drawn from prior operation income and expense of the business with a logical method of increasing or decreasing the costs for the future year. Creating a business financial forecast is a labor-intensive process that forces the business owner to assess every line of income and expense for his business, but it’s enormously beneficial for making management decisions. You can request a bankability assessment in order to be sure your business model can be driven by valid assumptions. Get a Free Bankability Assessment

4. Operation Documentation

Buyers are looking for a smooth transition into their new business, so evidence that your business is well organized and running smoothly will also add to your company’s value. Presenting your business as a clean and well-oiled machine with a neat, organized package of records detailing operating will help the valuation and sale process. Get a Business Plan Template to help organize your business

Our specialist Business Plan Team at Brickstone will help build tailored financial models conducting analysis thereof in conjunction with our Economic and Market Research Experts.

5. Consult With a Professional Business Adviser and Get a Formal Valuation

Hiring a professional business appraiser not only allows you to benefit from his or her expertise, but it also provides the objectivity that you may lack when it comes to your business. Correctly valuing your company is essential in a competitive market, and enlisting the help of a third party professional will not only eliminate seller sentiment from the sales process, but it will also shorten it by aligning the business value with up-to-date market conditions