Price v Value when selling your company
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Published: 23 Apr 2021
I believe that it was Warren Buffet who said:
“Price is what you pay and value is what you receive”
Seller's responsibility
In selling a company it is up to the seller to set out his stall on the benefits of owning his company to the buyer.
By this, I do not mean pulling the wool over the eyes of the buyer, but carefully reviewing the company’s systems, operations and financial controls and reports to make sure that they will stand up to the scrutiny of the buyer so that the latter is satisfied he is getting value for money.
Simply supplying a copy of last year’s financials to the buyer is leaving the seller open to the possibility of a lot of criticism and a perceived shortfall in value over the price.
Buyer's responsibility
The same principle applies in the case of the purchase of a company.
As a buyer, you need to be satisfied that the company’s systems, operations and financial controls and reports are adequate and that the price you are expected to pay is reasonable based on its profits and financial circumstances.
You do not have to play devil’s advocate, but you need to realistically assess the risks involved.
At the end of the day, you need to be convinced that the future return on the price paid is comparable with similar or alternative investments and that the profits are achievable.
Aspirations v Expectations
As a valuer of private companies, my aim is to bridge the aspirations of the “seller” with the expectations of the “buyer”, whether dealing with a trade sale or purchase, a shareholder dispute, a divorce settlement, or our friends at HMRC on a tax valuation.
If you are interested in further information on share valuations, then contact David Cane on 07749 080 806 or email me.
