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VALUATION OF BUSINESS VENTURES

VALUATION OF BUSINESS VENTURES. By Elisante Ole Gabriel egabriel@edenconsult.net, www.olegabriel.com +255-784-455-499. BUYING A BUSINESS VENTURE. Four Steps/Factors to consider when valuing the venture/business: Personal preferences Examination of opportunities

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VALUATION OF BUSINESS VENTURES

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  1. VALUATION OF BUSINESS VENTURES By Elisante Ole Gabriel egabriel@edenconsult.net, www.olegabriel.com +255-784-455-499

  2. BUYING A BUSINESS VENTURE Four Steps/Factors to consider when valuing the venture/business: • Personal preferences • Examination of opportunities • Evaluation of the selected ventures • To be clear of any doubts/questions (Why sold? Who is selling, etc…)

  3. Persona Preferences • Entrepreneur’s background • Skills • Interest • Experience and • Personal preferences for location and size of the venture/business

  4. Examination of Opportunities(Sources) • Business brokers • News paper ads • Trade sources • Professional sources (eg. Consultants, etc)

  5. Evaluation of the Selected Venture • The business environment (Micro & Marco – SLEEPTIN) • Profits, Sales and operating ratios • The Business’s assets – Tangible Vs Intangible

  6. Key Questions • Why is this business being sold? • What is the physical condition of the business? • How many key personnel will remain? (Recall the HRM Manager of MCC) • What is the degree of competition? • Will the existing owner sign a covenant not to compete? • How much capital is needed to buy the venture?

  7. IMPORTANCE OF VALUATION • Decision making process: Eg; Buying a business, Raising capital, Determining liability, etc) • Assess the differing goals of the seller Vs buyer’s goals • To manage emotional bias of the seller • To make a Cost Benefit Analysis (CBA) for acquisition

  8. METHODS OF VALUATION • Adjusted tangible Assets (B – Sheet) • Earning per share value • Discounted future value (NPV compared to future)

  9. UNDERLYING ISSUES IN VALUATION DECISION • The differing Goals of the buyer and seller (Pessimistic Vs. Optimistic view) • The emotional bias of the seller • Reasons for acquisition.

  10. Major Reasons for Acquisition • More growth • Increasing the customers’ base • Increasing Market share • Improving or changing the distribution channels • Improving customer service operations • Integration (Vertical, Horizontal, Forward or Backward)

  11. OTHER FACTORS TO CONSIDER: • Avoiding the start-up costs: The buyer may decide to buy existing/operating firm • Accuracy of Projection: It is critical to examine the trends, fluctuations. Or patterns involved in the projection of sales. • Control Factor: How much is the owner controlling the firm. 100%?, 49%?, 51%?

  12. Finally Conclusion • Valuation is such an important activity. Many business can easily fail because of poor valuation when buying the venture. Valuation is about determining the value and not synonymous to evaluation. • Entrepreneurs need to have a good reason to aquire a venture than starting a new one. It is very expensive to acquire and let it collapse.

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