For some years now, a number of websites have been offering to value your business “online”.  By entering a few financial details, you can obtain a valuation report, based on different valuation methods and accompanied by an educational section. This process, touted as simple, confidential and secure, seems ideal, especially as it is not expensive and sometimes even free.

However, the results obtained in just a few clicks should be treated with caution.  Specialists’ opinions are unanimous: valuation is a complex and delicate exercise. Balance sheet ratios need to be adjusted to take into account a company’s specific characteristics. These corrections or normalisations can have a significant impact on the value of the company.  By way of example, here are some questions to ask:

• In terms of profitability. Is management remuneration in line with the market? Should comfort costs be taken into account, i.e. certain benefits that are not strictly necessary for the continuation of the business? How will the rent change after the sale? Is there likely to be a change in the cost structure or sales margin? What about exceptional items that need to be adjusted?
• In terms of the balance sheet. Does the book value of inventories reflect their real value? Is work in progress properly valued? Is capitalised production (e.g. capitalisation of R&D costs) significant and does it generate cash flow? Is the trade receivables portfolio healthy? Are there any doubtful debts for which insufficient provision has been made? How is financial debt developing? Should bank debt be increased or reduced?
• In terms of available cash. Are there any marketable assets that are not required for operating purposes? What is the working capital requirement and how is it changing? Should seasonal variations in cash requirements be taken into account?

The question of valuation is the starting point for any change of ownership. Some people are tempted to find an easy solution. However, an automated calculation, even one that combines different methods, does not take into account the issues raised. If you start from the wrong or too low base, you run the risk of derailing the entire transfer process.

What’s more, while financial assistance (*) is available for this type of service, it would be a real shame to rush the job.

Only a human and individual approach can bring out the particularities of the business. Given the financial and human stakes involved, this exercise must be carried out seriously. What’s more, it’s essential that the advisor responsible for the transaction has familiarised himself with the key elements of valuation (**). When the sale price is well constructed, the climate of trust that is essential to the continuation of negotiations can be established.

Tanguy della Faille

FB Transmission

tanguy.della.faille@fb-transmission.com

(*) In Wallonia, 75% of the fees can be subsidised by Chèques Entreprises, when the valuation is carried out by a certified player. For more information, visit www.cheques-entreprises.be.

(**) Curiously, some “intermediaries” offer to support projects without having carried out or analysed the valuation. How can you be credible if you haven’t mastered the subject?