Posts

DIFFICULTIES IN VALUING A BUSINESS

/in ,

Valuing a business can be one of the most challenging issues faced by business owners and analysts alike. Valuing is a difficult and incredibly complex task, but one that is utterly essential. On occasion, traditional modes of valuation simply do not suit the business type. These techniques often assume a certain level of stability and an imagined risk profile which may not be applicable, and without being adapted, this can result in critical errors in valuation.

In the early stages of your business it can often be a struggle to value the business in an accurate way. This is also often a stage in which it can be difficult to predict the risks associated with the business. In this instance three things must be predicted which can be challenging to do in changing financial times: how will the market you are entering grow and change? What is the likelihood of your business surviving and what risks will be associated with the venture in the longer term?

Analysts can often be more concerned with the general economic growth, rather than the growth of the individual company and this may be something you will have to take into account in your own calculations. For ease: we have collected some of the most common forgotten issues that may become a problem in your valuation and risk assessment, in the hope that you may be able to avoid these pitfalls.

Originality/Diversity: A good thing to bear in mind when valuing your business is that businesses which offer an original/single product or service are subject to a higher risk level than those which offer a well-known or a great many products and services.

Clientele: It is important to take into account your current and projected clientele when valuing and assessing your business. For example, if your business is one which has relatively few clients, then your risk factors will be much higher as the results of losing one of your clients will be much more detrimental to your business than one which has a wide range of clients.

Projected Lifespan: Your Company’s projected lifespan is often difficult to assess but it is important to take into account the changing business world you are entering and whether or not it is likely that your product or service may soon become outdated.

Location: Location is not only a factor in setting up your business, but also in valuing it and assessing its growth capabilities for the future.

Assets/Liabilities: When valuing your business it can be easy to forget to factor in current and projected assets and liabilities. When included, these can paint a more in depth picture of the current and projected value of your company.

Expectations: It is vital to remember that valuations are essentially expectations by nature, and they can be used as a blueprint for the planning and maintenance of your business.

There are always unforeseen circumstances both negative and positive that will affect your business and these cannot be predicted. As such, your valuation is a blueprint for you to build upon rather than a strict prediction.

If there is any way at all we can be of benefit to you in the start-up, maintenance or valuation of your business please don’t hesitate to contact us at DCA Accountants.

DCA Q&A: SHOULD I PROMOTE FROM WITHIN?

/in ,

Q: The last few years have been frenetic setting up my own business. There have been a lot of long hours and stress. Now I’ve got my business to the point where it’s doing quite well, and I’d like to take a step back from the company and appoint a managing director.

In order to do this, I need someone to take on a large part of my role. I’ve identified a potential candidate among my staff, but I worry that choosing not to bring in someone from outside the company is a mistake. Are there any benefits to bringing in someone from outside?

 

A: Deciding to take a step back from your business can be a difficult decision, so it’s understandable that you want to make sure that you’re handing over the reins to someone capable.

 

There are pluses to bringing new blood into an organisation. They can bring different skillsets to the table, which can be extra important if you’re looking to expand the scope of your business or move into new markets. A fresh perspective can do wonders for a business, as the right candidate can see areas for improvement that are easier for an outsider to pinpoint.

 

But there are downsides to external hires. Looking outside of the company can damage morale, especially in small companies. Recruiting externally can be an expensive undertaking. Training an outsider is going to take longer than training an individual who has a working knowledge of your business.  Also, with all external hires there is the risk that the candidate will not fit within the company structure, or that they won’t like the company.

 

If you can promote from within it can lead to a better working atmosphere within the company, which can have a positive effect on productivity. Existing staff already know the ropes, so you don’t need to spend as much time training them in. There are other potential financial benefits. In-house staff may be happy with a salary raise, which may not be as high as the salary you may have to offer an external candidate. Promotion from within can help foster a good atmosphere, giving staff the message that hard work is rewarded with career advancement.

 

External candidates are excellent when looking to expand your business, but the motivation behind this promotion/hire is for you to take a step back from the business. In those circumstances it seems like an in-house promotion would be the most straight-forward option, particularly as you’ve identified a potential candidate from your existing staff. It is important, however, to make sure that you are evaluating their skills correctly. A diligent worker does not necessarily make a good managing director, and it’s worth making a list of the key skills involved in the role and trying to see how their competencies measure up. If there is nobody in your business with the requisite skillset, then the obvious next step is to look outside the company.

 

Declan Dolan

 

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.

KEEPING IT IN THE FAMILY

/in ,

When going into business with anyone it is important to make sure that you are acting in your own best interests. But is it harder to secure your position when your business partners are your family?

 

 

There are benefits to going into business with your family. You have a certain amount of trust built up and it’s hard to double cross someone who you’ll see at Christmas dinners and family barbecues. However, if that trust gets broken during your business dealings then it can affect both your personal and professional lives and therefore be doubly difficult to deal with.

 

In order for any business to be successful it needs to be run professionally. All family members must conduct themselves in a professional manner. That means trying to keep a firm distinction between your business lives and your professional lives, and it also means that when you’re in work you need to act like you’re with any group of colleagues. This creates a better impression to clients and non-familial employees.

 

Part of acting professionally is making sure that you are protected legally in case the business fails, or goes in a direction that you’re not comfortable with. For some people this seems counter-intuitive. Surely the biggest plus to going into business with your family is not having to worry about being treated shoddily. But families can fall out, and if yours does its best that you walk away from this business with what you’re legally entitled to.

 

While it might make sense to you to cover yourself, you might find it difficult to broach the subject with your loved ones. It might feel like you’re accusing them of not having your best interests at heart, or that you suspect that they may not be honest in their dealings further down the line.

 

However, the reasons for families needing to cover themselves legally aren’t necessarily malicious. Most of the time it’s not because of acrimonious fallings out, it’s because their life is in flux. If a member of the family committed money to the business, and then needs to withdraw capital or sell their share due to an ill child, it may be difficult to agree what the person is entitled to. This failure to agree may cause bad feeling, whereas if there is a legal agreement written up prior it’s clearer what is supposed to happen if circumstances change. Therefore it acts as a firewall, separating your business and professional lives.

 

Eamonn Garvey

Do you have a question for DCA’s experts? Contact us or connect with us on Twitter.