Sale market ready business in Russia is growing year by year. More and more people want to invest money, even if small, in a real business, to try themselves as an entrepreneur. And often the acquisition of an already operating company turns out to be the best option achieving these goals. But only if you approach the issue thoughtfully and thoroughly.

The slightest resistance of the seller in providing information is a danger signal!

When buying a ready-made business, regardless of its specifics, you can use the following algorithm of actions.

There are two ways to start an entrepreneurial activity (as well as expand an existing one): create new business or buy ready made. After evaluating the pros and cons of the second option, you can decide whether it is right, or it is better to use the first option.

Advantages of a ready-made business:

• History of development, good or bad, which makes it possible to evaluate it.
• Availability of premises and equipment.
• Completed staff.
• Established relationships and distribution channels.
• A finished product (service), sometimes a well-known brand.
• A certain demand for goods (services), the ability to predict its change.
• Detailed financial and accounting reports.

Cons of a ready-made business:

• The equipment may be worn out, and technological processes- outdated.
• The lease may not be renewed.
• Staff may be underskilled
• Counterparties may be unreliable, relations with them could be spoiled by the previous owner.
• Subsequently, debt obligations (unpaid taxes, penalties and customs duties or guarantee obligations) may “emerge”.

STEP 2. Choose the type of business to buy

To do this, you need to answer several questions:

1. Is there any kind of activity and business that you have dreamed of?

2. What type of business best matches your knowledge, skills and past experience?

3. What do you want to do: production, wholesale, retail or service?

4. Are you interested in import-export business?

4. Do you want to involve your family in work in a ready-made business?

Experts recommend that you first make a choice between production, retail, wholesale and services, then resolve the issue of import-export, and then determine a specific product (service) or market within the selected sector.

STEP 3. Decide on funds

First, decide how much own funds you can allocate to make a deal. Then decide how much money you can and are willing to borrow (for example, from a bank).

Note: the possibility of attracting borrowed money to acquire a business depends on the availability of liquid fixed assets and real estate. If you purchase a business that owns such assets, then in most cases you can borrow 50% of the total cost of the business or investment project. Your personal assets can also serve as collateral for a loan to buy a new business.

STEP 4. Choose the cost-effective options

Entrepreneurs who want to sell their business place ads in newspapers free ads or in the line ads department of local periodicals, in any business publications or newsletters, on specialized Internet sites. Another source of offers is brokerage companies specializing in the sale of ready-made businesses.

Note: sellers do not always “publicly” announce the sale of their business. The reason is the need for the strictest confidentiality, as the announcement of the sale can cause excitement among customers, employees and suppliers. And many potential sellers prefer to use face-to-face networks to find buyers.

Therefore, it is also necessary to make inquiries among friends, acquaintances, entrepreneurs, lawyers, bank employees, accountants, consultants and colleagues. You can also interview suppliers or distributors in the business you are interested in.

STEP 5. Find out the reasons for the sale of selected companies

The previous owner may have several of them:

• Changing of the living place. Lack of direct control and management of the process.
• Disagreements between owners. No joint agreement reached on ways further development companies.
• Loss of interest in business. After 6-8 years, the activity may simply cease to be satisfying.
• Illness, old age. Limited opportunities for the owner to manage the business, and there are no worthy successors to the business.
• The need for investment in another project. The owner found a more profitable and less burdensome line of business.
• Sale of non-core assets. Some activities large enterprises or holdings are less profitable or do not fit into the overall development concept.

In principle, all reasons can be grouped as follows:

• this business has ceased to bring sufficient profit (there is a recession and decline in the industry business activity; the company is in danger of bankruptcy; weak management; the company is involved in criminal scams, etc.);
• the owner is going to do some other business or diversify his activities; intends to retire for personal reasons; he does not have enough funds to develop the company.

It is clear that the purchase of a company is expedient only when the owner of the company is guided by considerations included in the second group.

In principle, at this stage, out of all the previously selected options, two or three suitable options remain.

In conditions Russian market it is not yet possible to estimate the value of a company based on the market value of its shares, since only large enterprises are listed on the open stock market. Therefore, when evaluating small and medium-sized businesses, experts recommend using the following approaches: profitable, market and costly.

income approach

With this approach, the value of the company is determined by the amount of expected income. This method assumes that the buyer will not pay more for the business than the present value of future earnings for the period of interest. Using this approach, the buyer calculates various options business development. However, with this approach, the level of risk is often determined too subjectively. This valuation method is good if the company's income is positive and stable.

Market Approach

The value of a business is estimated by comparing the sales of companies of comparable size in recent times. The main condition for applying this approach is a mature market. The value of the company being valued (V1) is determined as the product of the ratio of the market price of an analogue company (V2) and its base indicator (R2) to the base indicator (R1) of the company being valued: V1=V2/R2×R1. The basic indicators are usually: net profit, book value of the enterprise. When choosing comparable companies, they are guided by the following requirements: the industry of enterprises must match, the quantitative and qualitative characteristics of the company must be approximately equal.

Cost approach

The cost of a business is determined by the amount of resources spent on its reproduction or replacement, taking into account physical and obsolescence. This approach is most effective when the buyer is going to compare the cost of acquiring a business with the cost of setting up a similar business.

There is no clear answer as to which assessment method to use. In each case, approaches are combined depending on the specifics of the business.

Note: at this step, it makes sense to turn to independent consultants, business brokers or professional appraisers. They often play a vital role. After all, determining the value of a business is a process that requires professional knowledge and experience in various areas law, mathematical analysis, economics, accounting and auditing.

At this stage, as a rule, one suitable option remains.

STEP 7. Study the chosen business in detail

If funds allow (and the game is worth the candle!), It is best to turn to professionals again and order Legal Due Diligence (“due diligence”) - a comprehensive check of the seller for “due diligence”. At a minimum, it will clarify the credibility of the legal and financial information check the correctness of the paperwork and their compliance with the current legislation. As a maximum, "due diligence" includes conducting legal and financial audits of accounting and tax accounting, assessing the compliance of top managers with their positions, conducting an inventory of property, etc. to infinity.

If there are not many doubts, and the amount of the transaction is not so large, you can try to do the above procedure yourself: ask as many questions as possible, require reporting, inquire about numbers and models of equipment and dates of their purchase, inquire about business reputation, find out about all the obligations of the acquired company, etc.

Note: the slightest resistance of the seller in providing the information you are interested in is a danger signal!

Serious reasons for concern are also:

1. Shortened rigid time frame for selling a business.

2. Missing Key information by object.

3. Obtaining even existing information is difficult.

4. There is no clear reason for the sale or justification for the reason for the sale is not credible.

5. It was found that at least part of the information about the object was distorted or misinterpreted by the seller.

STEP 8. Minimize possible risks

1. Make inquiries about anything that could potentially harm your business.

2. Find out the status property complex and features of its location. This will prevent problems, for example, in connection with the termination of the lease.

3. It is necessary to rely on facts and, if possible, not to take a word, no matter how trustworthy the seller may be. This is especially true for the volume of profit and turnover of the company, declared by the seller.

4. Offer to conclude a guarantee obligation on the absence of debts that do not pass through the accounting department. It is signed by all founders and the CEO. Legal protection buyer is that after signing warranty obligation they are personally liable for any borrowing by the company during the last three years. In the event of negative consequences, the buyer has the opportunity to send creditors to their real debtor, or, if the case goes to court, file a recourse claim to protect their rights.

5. Lawyers also recommend compiling detailed plan transfer of management powers. This is especially important for maintaining relationships with customers, suppliers, other business partners and employees of the acquiree. After all, it is important for the buyer to maintain a viable business.

6. In the contract with the seller, you must specify that new owner acquires only those debts related to the activities of the enterprise, which are specified in the contract. And the debts connected with the previous activity of the enterprise, do not pass to the new owner. The agreement and its annexes must contain a detailed list of all debts included in the enterprise, indicating the creditors, the nature, size and timing of their claims.

STEP 9. Start negotiating a purchase

If all your doubts are resolved in positive side, make a formal offer and move on to negotiations.

Note: sellers prefer not to deal with frivolous buyers, so do not be surprised if you are asked to pay a deposit, similar to what is done during real estate transactions.

As a rule, in negotiations, both parties start with maximum and minimum offers and gradually soften their terms. Therefore, you must determine in advance the price and terms on which you agree to acquire the business. Naturally, start with more favorable conditions for yourself. Be prepared for the seller to meet your first offer with terms you find unfair. This is an inevitable part of bargaining. If your intentions are serious, work towards conditions that you agree to accept.

STEP 10. Get a business!

Reference

Ready-made business sales market: results of 2006

(www.1nz.ru/readarticle.php?article_id=1278)

The most demanded and offered, as usual, are cafes and small restaurants in the price range of $50-150 thousand; hairdressers, beauty salons ($25-50 thousand); car services ($100-250 thousand).

Offers of $10-20 thousand prevail among travel agencies, for which the demand is usually very insignificant. Worthy proposals can be considered travel companies that have not only a travel agency, but also a tour operator license, having their own representatives abroad and contracts with hotels and inns. But the price of such a company will already be from $30,000 and more.

There have been certain preferences in acquiring a business related to the provision of intangible services: consulting, audit companies, educational institutions. Investors are ready to invest up to $150,000 in such companies that have existed for more than 5-7 years and have all the necessary licenses and permits. Such types of businesses as modeling and concert agencies began to be offered. There were more proposals for the sale of advertising and advertising production companies.

In the field of medicine and pharmacology, there is an oversupply of medical centers and dental clinics and, on the contrary, the demand for pharmacies and pharmacy kiosks exceeds supply.

In retail trade, there is a significant excess of supply over demand. This is typical for small shops and pavilions in shopping malls worth 30-180 thousand dollars.

Among manufacturing enterprises factories for the production of bricks, blocks, tiles are popular. The buyer can pay up to $ 1 million for such a business, but he must be sure that all old connections and consumers will remain. At the same time, the demand for such a type of business as the production of PVC windows and doors is decreasing. There are proposals for food production (sausage, confectionery shops) worth $400-700 thousand, but the demand for them is low.

Recently, transactions for the purchase and sale of small businesses (enterprises with an annual turnover of up to $ 1 million and the number of employees up to 150 people, hereinafter abbreviated as MB) show rapid growth: more than 50% of MB enterprises change their owners during the first 3 years of their existence , with 30% of them doing so annually. In this regard, the issue of an objective assessment of the cost of MB is of particular relevance. The relative complexity of this issue is due to the fact that in any assessment, to a certain extent, there is subjectivity, which is expressed in the desire to sell more expensive or buy cheaper the business or its share being valued. In this article, we will consider methods for determining the value of an MB, which allow both to justify its high cost when selling, and to assess the investment potential of an MB when buying it.

Methods for estimating MB
The variety of assessment methods used is too great to give a complete and detailed analysis of all existing methods. In order to be able to evaluate the MB, it is enough to know 4 methods that can be used both separately and in combination with each other:

1) Replacement cost method
This method is based on the calculation of the cost of creating an enterprise comparable in terms of financial performance, market position, existing customer base, established relationships with suppliers, staff with the enterprise to be assessed. In other words, the appraiser calculates what it would cost to create such a business if the buyer were to create such a business from scratch. Then, as a rule, a discount (discount) from the received replacement cost is taken to justify the attractiveness of the price requested by the seller (20-30%). The use of the replacement method leads to a high appraised value of the business, since it allows you to include in the appraised value almost all the expenses incurred by the current owner of the business during the entire existence of the enterprise.

2) Book value method
This method is the easiest to use, as it allows you to evaluate the company according to the balance sheet: for this, it is enough to calculate the value of the assets that the company has, taking into account their depreciation, and subtract the cost of its liabilities from the amount received. This method is often called liquidation: in fact, it shows how much Money can be extracted from the game of blackjack for real money, if you stop its activities, sell assets, and pay off debts from the money received. The carrying amount method is considered the most conservative valuation method because it does not take into account many aspects of value that the buyer, if applied this method receives for free (for example, the same intangible assets). However, this method can also make sense for the seller if the company has a high book value of assets, but cannot boast of a significant cash flow.

3) Method of discounting cash flow (Discounted cash flow (DCF)method)
This method is based on an assessment of the financial results of the enterprise, in the first place - its cash flow. Most often, cash flow is understood as the net profit of the enterprise (after paying interest and taxes) erected (increased) by the amount of depreciation. Discounting is a financial transaction that allows you to determine the present value of future money. It is based on the idea that money today has more value than money received tomorrow. For example, $1,000 that you will receive in a year is not worth $1,000 today, but $1,000/(1+7%) = $934, because if you put $943 in the bank today at 7% per annum, then in a year you will get 1000$. Therefore, the fair value of the future cash flow should not exceed the amount that I can invest today with less risk and get the same result. 7% in this example- discount rate, usually equal to the return on risk-free investments (in our example, the return on bonds of the Ministry of Finance of the Republic of Belarus). To use enterprise cash flow discounting, you must define the period to be discounted. It depends on how much payback you put into the project. That is, if you want to demonstrate to an investor that his investment will pay off in 3 years, you need to discount the cash flow for this period. The value of this method lies in linking the value of the business with variables such as payback and return on risk-free investments.

At the same time, one should not regard the value of a business obtained by this method as its actual price. If you say that your business is worth as much as an investor will receive in 3 years on a risk-free investment, then any reasonable investor will consider this business overpriced because with a comparable return, he will always choose less risk. Therefore, discounting should be considered as a way to determine the "ceiling" of the cost and understand that the actual value of your business should not exceed it. Moreover, you need to show that the internal rate of return of the business is greater than the return on the risk-free investment (i.e., the presence of a return premium) for it to make investment sense. Either way, the discounted cash flow method is appropriate for valuing a cash-generating business, and its value is determined by the fact that it allows the fair value of the business to be judged in the most sensible way to invest. I recommend that business buyers, in conjunction with the use of this method, analyze the income and expenses of the enterprise in order to assess the reliability and stability of the company's cash flow, as well as evaluate it financial stability(margin of safety).

Intangible assets
Often, the valuation of the intangible assets of the business is used to justify the higher value of the business, especially when using the book value method. Some intangible assets (hereinafter - intangible assets) can be reflected in the balance sheet - most often this happens if the occurrence of intangible assets was associated with expenses that needed to be posted to accounting accounts. However, it would be erroneous to assume that the balance sheet fully reflects the list of intangible assets that the enterprise has and their actual value. Most often, the balance sheet indicates only a small part of the obvious intangible assets and their nominal value, which may differ from the actual one. The other extreme is to classify certain functions and elements of the business as intangible assets: employees, customer base, suppliers, business processes, and in general everything that can have at least some value in the eyes of a potential buyer. It is also difficult to call this approach objective, since it aims to sell the same enterprise twice: the first time as a material object, the second - by dividing it into intangible assets. If the seller talks about intangible assets in this way, he is most likely trying to justify the asking price, which he failed to link to more real assets. An objective approach to accounting for intangible assets is to identify intangible assets that are not reflected in the assessment of the material base of the enterprise and which have an independent value in the context of a sale and purchase transaction. These intangible assets are:

1) Special permits (licenses) and certificates
The value of IA data lies in the fact that they significantly expand or vice versa are necessary requirement areas of the enterprise. Their cost is determined by the principle of substitution: about how much such permits would cost you if you wanted to get them yourself, you will be prompted by any law firm.

2) Trademarks, patents, copyrights, other intellectual property
The peculiarity of these intangible assets is that they are an independent asset that can be used to reduce the tax base of an enterprise and reduce the cost of withdrawing dividends, not to mention receiving license fees from other enterprises.

3) Insurance policies
The value of intangible assets data lies in the insurance coverage provided by insurance policies paid for by the money of the previous owners. Of course, insurance coverage is paid upon the occurrence of insured events, which do not always happen, but still having insurance is certainly a positive thing.

4) Debt of the enterprise to the owners
Despite the fact that the debt of the enterprise to the owners from the point of view of the balance sheet is the obligation of the enterprise (its liability), it carries a value that forms a certain intangible asset. We are talking about re-issuing debt to new owners in order to use it to withdraw future dividends, which reduces the cost of withdrawing future dividends by 12% of the amount of debt.

5) Exclusive working conditions with suppliers and contractors
This intangible asset includes the discount percentage and payment terms that the company has in contrast to the standard working conditions available to any market participant. For example, an auto parts store may have a supplier discount of 35% off the retail price and a 15-day payment deferral, as opposed to a standard 25% discount and a 5 business day payment deferral. The cost of this intangible asset is determined depending on the volume of trade under these working conditions: with a turnover of $5K per month, such agreements can bring additional profit of $500 and another $50 if the proceeds are deposited before the expiration of the grace period. As a result, in 12 months such agreements can bring additional profit of $6.6K, which, you see, is not a little.

6) Know-how
Sometimes the proposed acquisition company may have knowledge that allows it to be more effective in comparison with other similar companies. These can be standards, regulations, business processes, management and accounting principles, marketing tools. Of course, such knowledge is rarely formalized even in a simple writing, therefore, in order to distinguish them in the chaos of the enterprise's operations, it is necessary to have a fairly trained eye. However, isolated and put into proper form, this knowledge has great commercial potential - both for the enterprise itself and for any other in which it can affect efficiency.

7) The right to lease an office / retail facility
It is often the case that a business has a valuable office or retail location in terms of customer traffic or cost per square meter, resulting in an intangible asset such as a leasehold that can be transferred to another business for a fee.

8) Site, groups in in social networks
Intangible asset data is usually evaluated either in terms of the principle of substitution (how much it will cost to develop an analogue), or in terms of the number of hits generated per month. If we know such a statistical indicator as the average check, we can calculate the amount of revenue that these resources “make”. However, it is worth remembering that both the site and groups in social networks are not only assets, but also liabilities that have their own expenditure side. In order to objectively assess the costs of maintaining and promoting resources, I recommend calculating the costs per 1 appeal, which will allow you to compare the result with the average check and draw a conclusion about the potential of this intangible asset.

9) Client base
The client base is usually positioned as the No. 1 intangible asset, however, this prioritization most often occurs when intangible assets are used to inflate the value of the business. Objectively, the client base forms an intangible asset when it is designed in such a way that allows you to apply certain marketing tools to it (for example, SMS mailing) in order to receive a certain number of customer requests as a result. From this point of view, the client base as an intangible asset is comparable to a website and groups in social networks.

Hidden obligations
If accounting for intangible assets in business valuation has become a common practice, then hidden liabilities rarely appear in business valuation. We are talking about certain tax, financial and legal aspects of the business that can lead to adverse consequences for the owner, which is reflected in the additional costs that arise after the implementation of the sale and purchase transaction and fall heavily on the shoulders of new business owners. The use of the term "hidden obligations" in relation to these aspects is explained by the fact that they exist at the time of the transaction, but are rarely detected by a standard audit. financial statements because they require interdisciplinary knowledge. Here are some examples of hidden obligations:

1) Legal claims and lawsuits
The seller may or may not be fully aware of the legal claims and claims that exist at the time of studying the business, while they often carry not only accounts payable, but also penalties and legal costs of the plaintiff, not to mention that the legal costs will have to be borne by the enterprise itself - for the representation of interests and defense in court.

2) Potential fines
Sometimes an interdisciplinary business audit reveals the commission of various actions related to closer interaction with government bodies than the usual entrepreneurial activity(import of cars under Decree No. 6, obtaining rights to operate unused real estate, issuing and selling securities, foreign gratuitous assistance), which may involve various violations and, as a result, a fine.

3) "Poison Pills"
"Poison pills" in legal practice are the clauses of contracts aimed at protecting the second party, which is expressed in the obligation of the enterprise to pay compensation in the event of unilateral termination of the contract or other actions undesirable for the party. The identification of these hidden obligations and their neutralization require a legal audit of the enterprise's contracts. A special case of the “poison pill” may be the copyright of the former owners of the enterprise for some inseparable part of it, which may eventually lead to a situation where the enterprise will be forced to pay a fee for the use of intellectual property or refuse to use it.

How to evaluate the value of a business?
Now that we have a broader understanding of business valuation methods, we can move on to formulating a strategy for determining its value. We will not use the cost replacement method, which leads to a clearly inflated cost. As a base, it is best to use the book value method, supplementing it with the value of the company's intangible assets. In parallel, we will determine the value of the business using the discounted cash flow method. As a result, we should have two scenarios: 1) the discounted value exceeds the book value + the cost of intangible assets; 2) book value + value of intangible assets exceeds the discounted value.

Purchase evaluation features
The peculiarity of the valuation when buying a business is that a) you know the value of the business (sales price) and you need to determine how justified it is; b) you need to verify the accuracy of the information provided by the seller on the financial results of the enterprise and the value of certain tangible and intangible assets. As in the case of a sale, when buying a business, you need to calculate the estimated value using the discount method and correlate the resulting value with the book value plus the value of intangible assets in order to understand which scenario we are dealing with. In the first scenario, it is important to determine how reliable the information provided by the seller is, whether the value is calculated correctly net profit how stable is the cash flow.

If the assessed business corresponds to the second scenario, it is necessary to carefully study the list of assets in the balance sheet for their objective (real) value, the list of liabilities - for completeness of reflection (whether they are fully reflected in the statements) and their maturity dates. Even the compliance of the asking price with the revealed value is not a basis for considering the quoted price as fair, since the liquidation value of the assets may actually be lower than the value that they have according to accounting data. In order to mitigate the risk, the asking price must contain a certain discount from the book value. In some cases, when the listed price exceeds the book price, the seller may say that the business has some goodwill (or that the business is worth more than its tangibles by virtue of being a business).

What is goodwill?
Goodwill is financial term, which means the difference between the market value of the business and its book value, in fact, it reflects the amount that the buyer is willing to overpay for the ownership of the enterprise in excess of its book value. In other words, goodwill is the additional intangible value of a business that supplements its book value. In this context, goodwill is associated with intangible assets, which, in essence, constitute the content of goodwill. But since goodwill, on the one hand, is nothing more than manipulation from an accounting point of view (let's not forget that it is used to justify the excess of the book value of the enterprise when buying it), it must in any case be related to intangible assets. If goodwill > 50% of the value of intangible assets, the cost this business I consider it overpriced< 50% — объективную, если гудвилл отсутствует вообще (при наличии НМА не менее 10-20% от базовой стоимости) — привлекательную для приобретения.

Conclusion
Thus, the business valuation technology depends on the purpose of the conduct and must take into account the reliability of the data provided, the book value of the enterprise, the generated cash flow, intangible assets and hidden liabilities. An interdisciplinary analysis at the intersection of accounting, financial accounting, tax legislation and jurisprudence can provide the necessary completeness of the analysis.

Articles

How to evaluate a ready-made business?

A few seditious thoughts

I am sure that professional appraisers will not like this article. Many of them may even want to crucify me upside down on the cross for seditious thoughts about the appraisal business. The fact is that the role of this sphere, its place in the modern economy, especially in small and medium-sized businesses, are often exaggerated, redundant, and practical conclusions are controversial.

What is by and large market valuation business? This is a determination of the cost for which it can be sold, and what profit it will bring in the future. Professional appraisers have several basic valuation methods at their disposal, the content of which is widely covered in the valuation literature and enshrined in valuation legislation.

Three methods are used in Russia: "income approach", "cost approach" and "comparative approach". All these methods are complex, require special training, and for an ordinary entrepreneur, whose motto is "act and earn!", They will seem unnecessarily complicated and have a very distant relation to his activities in the form of a pair of outlets, a car service or an online store.

Maybe appraisers are right with their calculations when it comes to large enterprises and transnational corporations?

Alas, not always. Otherwise, the stock market, trading in stocks and other securities would simply die, or would never experience the colossal fluctuations that we periodically observe. Indeed, in the stock markets, especially in countries with developed and rapidly developing economies, colossal money is spinning. Investment funds, management companies, before purchasing shares or bonds of certain companies, actually conduct a thorough assessment of the value of enterprises, rightly expecting a certain level of dividends or capital gains.
If business valuation methods were correct, then the movement of funds in the stock markets would be insignificant, since everyone represented quite accurately how much one could get by investing in a particular company. In fact, the stock market is very volatile and subject to significant fluctuations, sometimes contrary to the obvious logic and methods of calculating business valuation.

Take, for example, the latest stock market crisis. China suffered the greatest losses - since the beginning of this year, the total index of shares of Chinese enterprises has decreased by 20 percent. At the same time, China's GDP growth in 2007 amounted to 11.4 percent, the forecast for 2008 is approximately the same. So where did a fifth of the Chinese potential evaporate in a short time? It turns out that professional appraisers corrected their forecasts so quickly, having made a mistake by trillions of dollars?

What do I care, - an ordinary entrepreneur will say, - to China's GDP, investment funds of valuation methods and other high matters? And he will be right. No one but him can better assess the potential and value of his business. Indeed, in most cases, only the entrepreneur thoroughly knows all the weak and strengths their business, as well as the limit of its development. In order to evaluate the business yourself, it is enough to know a few basic points and follow common sense.

Shortcomings of Individuals

The sale of a ready-made business serves as a kind of moment of truth for an entrepreneur. The point is not even so much in how you developed it, but in the fact that by the time of the sale, due to ignorance of some legal aspects, its value may turn out to be much less than you imagined it. This is especially influenced by the choice of the organizational and legal form of doing business.

Many Russians, when starting their own business, register as individual entrepreneurs. Yes, there are a lot of advantages in this form: ease of registration, lower penalties, the optionality of making a seal and opening a current account, etc.

But there are also disadvantages, one of which is directly related to the topic of the article - this form of entrepreneurship does not allow you to sell your business in one fell swoop as a complex of ready-made businesses. It is no coincidence that all business valuation methods enshrined in law are sharpened under legal entities. After all, you are acting as an individual, and all contracts, property, permits, licenses, franchises, trademark rights, etc. are executed on you.

The buyer will have to re-register all this for himself, spending a lot of time and money. Naturally, all costs, including payment for speed, affect the final amount of the transaction. And it is not yet a fact that, by renewing the contract with the new entrepreneur, the landlord will provide the new owner with the same conditions as you. He may simply not like the personality of the buyer.

So, if you intend to sell your business, in advance, minimize the number of documents that require re-registration.
Transfer your status as an entrepreneur to the owner of an LLC or joint-stock company appropriate when your business has reached a more or less significant scale. Then you can safely prepare for its sale in whole or in large part.

On the contrary, when acquiring a business, remember about possible additional costs associated with the peculiarities of its organizational and legal form - individual entrepreneurs are not sold, only their property is subject to sale, and the rights under the concluded agreements are assigned.

One business, three costs!

When you are about to sell your business, you have little interest in the motives of potential buyers at first. However, it is motivation that can have a significant impact on the final price of the transaction, that is, on its market value. A buyer can have three main goals, but they are all related to generating income:

1. Sale of your business in parts or further resale. It is possible that you own real estate or the right to rent land plot, which is located in a promising area where active development of residential buildings or shopping malls is planned. Or is it the resale of a regional brand that you have developed, such as Petrov's Krupa, to some large Russian or foreign agro-industrial holding that is ousting competitors locally.

Approximately according to this scheme, the once famous Armavir Tobacco Factory, which has now become a haven for numerous offices, was bought out and then resold to one of the international tobacco concerns. In this case, the concept of liquidation value is applicable - the price of assets minus the total amount of liabilities and costs of sale.

2. Income from the activities of the enterprise. The buyer is interested in maintaining and developing the business. Perhaps some repurposing, reorganization or affiliation.

In this situation we are talking about the investment value, which takes into account the increase in profits from market expansion, the use of know-how, the prospective owner's reorganization plans. There's a lot of bargaining to be had here, just as Yahoo's shareholders did when they finally turned down Microsoft's super lucrative $44.6 billion offer. The guys from Yahoo apparently felt that in the future their company would cost much more.

3. The combination of the maximum indicators of the two values, liquidation and investment, results in a reasonable market value. Sell ​​your business on this very favorable price perhaps, as a rule, to professional investors specializing in the acquisition, development and further sale of a business. These can be local businessmen involved in everything that brings money, and representatives of large companies.

Therefore, if you consider your business profitable and promising, feel free to contact large investment companies and diversified holdings of oligarchs with an offer. Surely they do not know about your existence and, if they are interested, they can give a fair price that is beyond the reach of competitors of your level. You can also advertise on specialized bulletin boards or business portals. Today in Russia there is a lot of money, the owners of which are looking for investment objects.

What is the investor thinking?

Any investor, whether it is an investment fund or your neighbor, thinks about how quickly the invested funds will pay off and begin to generate income. By the way, this is one of the most effective, but at the same time a simple and logical way to assess the value of a business. Professional appraisers would see elements of the "profitable" method in it.

In the late 1990s and early 2000s, an attractive payback period was 1.5-2 years in small and medium-sized, and sometimes even in large businesses in Russia. As the value of the business increased, the payback period increased to 2-3 years. And in large - and up to 5. In the West, the standard is a period of 7-8 years, which is quite reasonable, given the more low cost credit resources.

The payback period is directly affected by several factors. Firstly, the total cost of the business, its scale - the more expensive the longer you have to wait. But then every month there will be a much greater return.

Secondly, the value of the lending rate - the higher it is, the faster business should generate income. Otherwise, bank deposits will become a more attractive alternative than buying a ready-made business.

The third factor is the rise in prices for real estate, land and, accordingly, the cost of rent. Land and real estate are getting more and more expensive. specific gravity increases in costs, which leads to an increase in expenses not related to business development, and therefore reduces the overall profitability, lengthens the payback period.

The fourth defining moment is the turnover cycle. The shorter it is, the less working capital and funds to start and, therefore, time to recapture the money. It is one thing to sell newspapers and magazines, and another to do construction and repair work. Although the profitability is almost the same.

In practice, the calculation is simple. Let's say your two outlets(standard kiosks) give 120 thousand rubles. net income per month. The kiosks are owned by you, but built on rented municipal land. They are not considered full-fledged real estate objects, they appear as temporary structures, and they will not let you buy the land under them, but they can be withdrawn at any time for city needs. Therefore, as an asset, they do not represent independent value. In this case, a reasonable selling price of your business, given the profitability and short turnover period, may be equal to the amount of profit that you receive in a period of one to two years - from 1.44 million to 2.88 million rubles.

The provisional principle is also followed by many large companies. For example, the Tander company, which owns a chain of stores retail"Magnet" adhered to the following tactics - opening a store in a new place, the company waited 4 months. If the store began to pay for itself, they left it. If not, closed.

For the price of an entrance ticket, or draw up a business plan

Estimating the value of a business depending on the payback period is, of course, convenient and simple, but it misses several important things that could increase its price. First, how much do similar offers cost on the market, and how much time and money would it take for a buyer to create and develop such a business on their own? It is possible that for you personally, thanks to connections in the mayor's office or equipment or premises bought on the occasion, the business cost much less and you developed faster. Selling based only on the payback period would be illogical. Therefore, it is useful to at least roughly estimate the cost of the "entry ticket" from scratch.

Calculate how much you would have spent by the time of the sale at current prices of money on rent, purchase of equipment, advertising, what would be total amount costs until the first profit. In other words, make exemplary business plan, but already taking into account your knowledge of all the nuances. Such an approach is called "costly" by independent appraisers.

A business plan, even the simplest one, will help you convince a potential buyer that your business is worth buying. Try to take into account all your strongest points in this business plan for the client. competitive advantages. For example, your hairdressing salon employs the best craftsmen in the area, for the sake of which people come to you who are ready to overpay for quality. Or that you have the best imported manufacturing equipment in the area bakery products or dumplings.

A good name is worth a lot

Surely you are not the only one who is going to sell a business like yours. Naturally, a potential buyer will compare all available offers, and most likely it will require the use of elements of the so-called "comparative" approach. The accuracy of the estimate depends on the quality of the collected data, since, using this approach, it is necessary to collect reliable information on recent sales of comparable properties.
This data includes: economic characteristics, time of sale, location, terms of sale and terms of financing. For example, it is one thing to sell a business for cash, another thing is to sell it on credit.

The effectiveness of the comparative approach is reduced if there were few transactions or a lot of time passed between them; if the market is in an abnormal state, as rapid changes in the market lead to distortion of the indicators. For example, a new head, a well-known lover of the redistribution of property, was appointed (elected) in a district or city. Or, as in Sochi, they decided to hold the Olympic Games.

In order not to suffer too much with a comparative assessment of a business, you can resort to analyzing franchise offers similar to your profile, which indicate the requirements for a franchise buyer. The main one is the amount of investment for the business to operate and develop. Simply put, the franchisee is asking you to work with their technology, brand, style, and so on. The franchise can be sold to almost any type of small and medium-sized business: sushi delivery, travel agencies, restaurants, stamp shops and real estate agencies, etc. Type "franchise" or "franchise directory" into an Internet search engine and you will find hundreds of offers indicating the amount needed to start a business.

At the same time, the comparative approach allows you to focus on your individual characteristics, on the intangible assets created during your work. Western economists, and now Russian ones, use such a concept as "goodwill" (goodwill - good will).
Goodwill is essentially a combination of those elements of a business or personal qualities that encourage customers to continue to use the services of this enterprise or this entrepreneur, and which generate a profit in excess of that which comes from tangible as well as intangible assets that are subject to an accurate assessment in monetary terms.

It is said to occur when you make a profit higher than the average in this area of ​​\u200b\u200bbusiness, that is, people are predisposed to buy from you.

Goodwill includes a favorable location, an established clientele, and the credibility of individual employees. This factor cannot be felt and calculated, but it is necessary to evaluate. Indeed, the development of any business is based on good relations, that is, the good will of sellers and buyers. And your task is to convince the buyer of your business that you have earned goodwill, and it is not in vain that he pays an additional 10-20 percent for a promising and promoted business.

When You Can't Do Without an Appraiser

Having fired a couple of arrows in the direction of the institution of professional appraisers, for the sake of truth it is worth noting that in practice there are moments when you simply cannot do without professional appraisers.

First, when arguing with tax office about the market value of the object of purchase and sale in the form of real estate. For example, you purchased a room for a workshop for 3 million rubles, and the tax authorities, in accordance with Article 40 tax code, having the right to control prices to determine the taxable base, they say - you, brother, underestimated the cost of the premises and did not pay extra taxes.

This is where the conclusion of a professional appraiser helps in a dispute with the inspection, which will become an argument for setting the transaction price corresponding to the current market value. The conclusion of a professional has the status of an official document and can be used in arbitration court as conclusive evidence when considering cases related to determining the completeness and correctness of the calculation and payment of taxes. In addition, sometimes it is beneficial to officially revalue the property of the enterprise downward, which helps to save on property tax.

The second category of partners of an entrepreneur, in relations with which the opinion of appraisers can be useful, are banks. By issuing secured loans, banks try to underestimate the value of the mortgaged property. Determining the real market value of the property by an independent appraiser makes it possible to establish a fair ratio between the value of the pledged property and the amount of the loan. In case of non-repayment of the loan, the official conclusion contributes to the prevention of disagreements between the parties to the transaction that arise when foreclosing the pledged property.
Professional appraisers are of great help even if you resort to the services of insurance companies. There are several hidden points that insurers prefer to remain silent about.

A case from one's life. The entrepreneur insured the warehouses he purchased for a fairly decent amount. But when the fire broke out, the insurance company offered a much smaller amount to be paid than was indicated in the contract, stating that, based on current legislation, the contract is void in terms of the excess of the sum insured over the actual (market) value of the property. It was of course impossible to determine in hindsight how much the burned warehouse cost. At the same time, the overpaid insurance premium was not returned to the entrepreneur.

If, at the time of concluding the insurance contract, the entrepreneur was armed with the conclusion of the appraiser, there would be no problems - the examination carried out by an independent appraiser categorically does not allow the insurer to subsequently dispute the sum insured under the contract.

There are other times when professional assessment helps entrepreneurs. Among them, it should be noted the assessment of damage in the event of an insured event, as well as damage to the property of the entrepreneur or third parties. Knowing how much you really lost, you will be able to clearly justify your position in a controversial situation, including in a lawsuit.

D. Protasov, business consultant
Magazine "Modern Entrepreneur. Individual approach to business", N 3, March 2008

Increasingly, funds are being invested in businesses with a view to resale / purchase or merger with other organizations for profit. And then the question arises: “How to evaluate the value of a business, taking into account all investments?”.

Express assessment “on the knee”. If you have a simple business and need a valuation, then calculate as follows: “profit for 1 - 2 years + property” and sell.

Cost types

First of all, let's deal with the types of business valuation. Different classifications give us different types cost, but I decided to stop at the basic ones. By the way, each of the types has its own purpose and objectives for business valuation, then you will understand why this is necessary.

I also want to note that these types of valuation relate to existing businesses.

1. Market

The price of selling/purchasing a business under conditions of market competition.

The market value will be the price of all the property of the organization, taking into account the income that can be received in the future.

This value of the business is determined when it is necessary to find out the place of the organization in the market for M&A transactions (mergers or acquisitions), business sales or long-term development adjustments.

Determining the market value in business valuation is based on in-depth analysis and cash flows.

Example (simple)

Let's analyze the market value of a business using the example of Romashka OJSC. The founder wants to adjust the development strategy. And for this he makes the following table:

We see that the price of the business has increased by 320,000 rubles over the year, which indicates the positive growth rates of Romashka OJSC, the business is going uphill.

2. Investment

The value of the property for specific investment purposes.

Calculated when business owners decide to launch investment projects. Or the organization is considered by investors for investment.

Depending on the projected return on investment, the cost of this type can be either higher than the market value or lower.

Example (simple)

JSC "Romashka" is planning a strategic partnership with JSC "Oblachko". The partnership is considered as an investment project.

In this case, to evaluate the business, it is necessary to determine the investment value of the partnership, for this we will predict the benefits that we can get from a merger with another company.

The investment value of the business in the implementation of the partnership project in 5 years will be 11,756,723 rubles, which is beneficial for Romashka OJSC. This example with calculations is considered in more detail below, in paragraph.

3. Recovery (current)

The sum of all costs of establishing and operating a business, including assets.

It is necessary when the top management of the organization made a decision on property insurance, also if the founders decided to revalue the assets. And more - when it is necessary to optimize existing system taxation.

Example (simple)

The management of OJSC "Romashka" considers it necessary to insure the business against risks, while the opening of the business was 5 years ago. In this case, assets are revalued for insurance and the replacement value of the business is determined.

During this time, fixed assets (equipment, real estate) have fallen significantly in value, reflecting the replacement cost of the business.

The revaluation of equipment and real estate in 2018 led to a decrease in the value of the business, compared to 2013, by 700,000 rubles.

4. Liquidation

The value of the business in monetary terms minus all costs associated with its sale.

Such a cost estimate is needed when, due to unforeseen circumstances, it is necessary to close the business as soon as possible.

It is important to remember that with an emergency sale of a product, its value becomes lower than the market value, and the same is true with the sale of a business.

Example (simple)

OJSC "Romashka" is closed due to the high market. In this case, according to the latest reporting, the price of the entire property is determined.

All debts to counterparties and partners, payments to employees, payment of commission to realtors for the sale of real estate, expenses for maintaining equipment in good condition until the sale.

Do not forget that even in liquidation, the organization can make a profit.

The difference between the value of the property and the costs during the liquidation period for OAO Romashka amounted to 5,500,000 rubles.

Valuation Approaches

There are three ways to value a business. And according to Russian legislation, the appraiser (yes, that's right, it's not you who evaluates) is required to use all three approaches, and if any of them is not used, then justify in detail why.

1. Profitable

The income method of business valuation is based on the forecast of profit from the operation of the business. Thus, the company's future earnings are reduced to the current value.

In other words, the higher the organization's planned income, the greater the current price of the business.

1.1 Direct capitalization method

Based on the organization's revenue adjusted for the planned business growth rate.

This method is suitable for organizations that plan to maintain or increase the growth rate and profitability of the business, that is, for large stable developing companies. In this case, the evaluation formula is as follows:

Where “V” is the value of the business, “I” is the income of the organization, “R” is the capitalization rate.

Income is calculated according to the report on financial results reflected in the form No. 2 of the financial statements. Most often, these data are taken over a period of 3-5 years and averaged.

If information on income can be found in the financial statements, then the capitalization rate (R) must be calculated using the formula:

R = Discount rate - Projected average growth rate of the company's earnings

Example

The purpose of cost estimation is to improve management efficiency. Note: In 2017, the cost of OJSC Romashka was estimated at 7,500,000, with income of 1,350,000 rubles.

Let's say Romashka OJSC in 2018 has an income of 1,098,000 rubles. We divide this value by the capitalization rate and get the business value equal to 7,320,000 rubles.

So, after the current calculations, we see that the organization is losing ground, business growth rates are declining, the efficiency of cash flow management has become less effective.

1.2 Discounting expected cash flows

This method is based on the fact that the money and assets that the company has now are worth more than the same money and assets in the future.

The discount method is used to estimate the cost big business, subject to the influence of various environmental factors, for example, the seasonality of income.

Cash flow is the flow of cash into the company.

Discounting of cash flows occurs by multiplying the cash flow by the discount factor according to the formula:

Discounted Cash Flow Formula

Where “DCF” is the discounted cash flow, “r” is the discount rate, “n” is the number of cash flow calculation periods, “i” is the number of the period.

Example

The purpose of the valuation is to determine the effect of the merger of Romashka OJSC with Oblachko OJSC

Let's say Romashka OJSC enters into a partnership with an income of 7,300,000 rubles. per year, and after 5 years of partnership seeks to receive an income of 9,000,000 rubles, with an income rate of 10% per annum. How to determine if a given project is profitable?

Investment cost = (9,000,000) / (1 + 0.1) ^ 5 = 5,588,291.9 rubles.

By means of elementary calculations, it turns out that after 5 years, Romashka OJSC will be able to receive the desired income by investing only 5,588,291.9 rubles. Therefore, the alliance between Romashka OJSC and Oblachko OJSC is profitable.

2. Comparative

In this business valuation method, the organization being valued is compared with similar companies. Similar companies must be similar in terms of economic, material, technical and other conditions.

After selecting analogue companies, suitable multipliers are calculated for them, that is, the ratio of the sale price and the economic indicator.

The cost of a business under the comparative valuation method is calculated by multiplying the obtained multipliers by key financial indicators the organization being assessed.

2.1 Deal method (sales method)

This method is based on the analysis of market prices for the purchase or sale of controlling or 100% stakes in organizations similar to the business being valued.

After calculating and applying the multipliers, the resulting business value is reduced to a weighted average. The transaction method uses the following formula:

Business value (capitalization) = Indicator * Multiplier

Example

The purpose of the appraisal is the sale of the business. Therefore, it is necessary to evaluate 100% of all issued shares of OAO Romashka.

We will take the initial data from the financial statements: revenue = 730,000 rubles, value of assets = 410,000 rubles.

By studying the market and external environment, we have chosen three companies - analogues. Because it public companies, their reporting is open to external users, so we can easily display multipliers that are interesting to us.

The table below shows the data of peer companies, calculated multipliers and indicators of OAO Romashka.

To determine the exact value of the multipliers, it is necessary to display the weighted values ​​of the multipliers (we have 9.30 and 14.20).

• According to the P\R multiplier - 6,789,000 rubles;
• According to the P\R multiplier - 5,822,000 rubles.

However, the final cost of the business should be the same, so further it is necessary to weigh the resulting values.

If we set the weight to the P\R multiplier - 0.8, and to the P\A multiplier - 0.2, then with the help of elementary calculations we get the total value of the Romashka OJSC business equal to 6,595,600 rubles.

The method does not require further adjustment for the degree of control, since the prices for controlling stakes in peer companies were used as initial information.

2.2. Capital market method

This method is based on the analysis of prices for shares of peer companies available on the market in open circulation.

In this case, experts use multipliers, where the numerator is the share price, and the denominator is a financial indicator, for example, revenue or profit.

This method uses per-share adjustments to financial ratios, such as earnings per share. Otherwise, this method is identical to the trades method:

Business value = Revenue * (Price per share) / (Revenue per share)

Example

The purpose of the appraisal is the sale of OAO Romashka. Despite the fact that the company over the past few years has received an annual profit of 100,000 rubles.

The ratio "price per share / earnings per share" (adjusted per share) for similar companies is equal to 7. How to find out how much JSC Romashka is worth?

Cost of OAO Romashka = (annual earnings) x (multiplier “price per share / earnings per share”)

100,000 x 7 \u003d 700,000 rubles.

2.3 Industry coefficient method

This method is based on the use of pre-calculated and analyzed relationships between the selling price of a business in a particular industry and its financial performance.

For example, marketing agencies can be sold for 0.9 per annum, consulting agencies for 0.7 per annum.

In Russia, the method of sectoral coefficients has not yet become widespread, since there is no in-depth analytics of sectoral indicators by statistical and specialized services.

Example

The purpose of the assessment is to adjust the business development strategy. To do this, we calculate the annual revenue, which is equal to 6,500,000 rubles.

JSC "Romashka" operates in the field wholesale colors. According to market analysis, you can derive an industry coefficient equal to 1.8.

So, having a business value of 11,700,000 rubles. with a revenue of 6,500,000 rubles, the management of Romashka OJSC may decide to expand the network.

3. Expensive

The cost method of valuation determines the value of a business as the price of the company's assets. To apply this approach, the appraiser must have access to reliable information on the costs of acquiring and maintaining assets.

3.1 Net asset method in business valuation

This method is based on asset analysis. The first step is to value intangible assets. Next comes the analysis of inventory items, stocks. Then a detailed assessment of non-monetary assets (accounts receivable) is made.

The net asset method is quite simple in calculations, the value of the business is determined by the formula:

Example

The purpose of the appraisal is to identify the value of OAO Romashka for business insurance against credit risks.

It is necessary to determine the amount of assets and debts of Romashka OJSC. So, all assets are determined at 4,573,100 rubles, and debt obligations at 2,546,900 rubles. Thus, the cost of OAO Romashka is estimated at 7,120,000 rubles.

As a result of the assessment, it was determined that Romashka OJSC could be insured for 7,120,000 rubles.

3.2 Salvage value method

It is used when it is already known for sure that the business will be liquidated, and the owners need to determine the value of the business for quick implementation. Calculation formula:

Business Value = Market Value of Assets - Liabilities

Since the company is being liquidated, we calculate the proceeds from the sale of equipment, stocks and materials, adjusted for quick sale.

Thus, the market value of the assets of Romashka OJSC is determined at 5,213,100 rubles. At the same time, the cost of maintaining and servicing equipment and supplies until the sale will amount to 543,000 rubles.

Recently, the organization has accumulated significant debts to creditors, which amount to 1,876,000.

Also, at closing, it is necessary to pay all severance benefits to employees, which in total amount to 665,200 rubles. The profit for the liquidation period will be 4,871,100 rubles.

As a result, the cost of OAO "Romashka" by the liquidation value method is determined at 7,000,000 rubles.

Method Conclusions

After a detailed consideration of all approaches to business valuation, it is advisable to structure the information received and to derive the advantages and disadvantages of each method.

An approach	Advantages	Flaws	The best situation for a method
Profitable	Analysis of future income; takes into account the characteristics of the company; universal, suitable for different evaluation purposes; identifies weaknesses in the business	Forecast data is used; complexity of calculations; subjective and probabilistic nature of the results; inaccurate results	Improving management efficiency; rationale for the decision to launch an investment project
Comparative	Actual market data is used; evaluates efficiency under current conditions	Does not take into account the expectations of investors; the difficulty of finding similar objects in some industries	Deciding on an additional issue of shares; change in development strategy; buying or selling a business; restructuring
costly	Assets are valued; the accuracy of the estimate is justified; calculations are very simple, information is available	Development prospects are not taken into account; reflects the past value of the business; value may not correspond to current market prices	Liquidation or quick sale; revaluation of assets; assessment of the financial performance of the organization; solvency of the company and the value of collateral for lending, insurance

Note on Methods

So, after the calculations are made by the three methods, it is necessary to identify the final result. By the way, the cost should be approximately the same.

The data differ mainly because one particular approach fits the purpose of the assessment more than others, or is more relevant to the situation. Coordination is carried out according to the formula:

Total cost = Profitable × K1 + Comparative × K2 + Costly × K3

“K1”, “K2”, “K3” are weight coefficients selected depending on the significance of a particular cost in the final assessment. The coefficients must add up to one.

Example

Consider the already familiar Romashka JSC. Calculation data in the table below.

Explanation of the coefficients: the appraiser believes that the comparative is the most significant in this case, so it is assigned the maximum weight.

So, having calculated according to the formula, the final agreed value of the business is determined at 6,924,200 rubles.

Wow! I thought we'll count once and that's it

Step-by-step instruction

In this chapter, I will cover the main steps in business valuation. Naturally, every business has its own nuances, it is important to remember this.

1. Goal definition

The first step is to determine the purpose of the business valuation. This step is important for the implementation economic interests parties that came to a business valuation decision. And most often the assessment is carried out in the following cases:

1. To improve the efficiency of the organization's management;
2. Justify the decision to launch an investment project;
3. Buy or sell a business, or a share of it;
4. Restructure the enterprise;
5. Develop a long-term development strategy;
6. Assess the financial performance of the organization;
7. Decide on the issuance and sale of securities.

2. Choosing an appraisal company

This is a very important step. In many countries, business valuation is carried out by independent professionals who adhere to established industry standards in their work.

A good tool that can help when choosing an appraiser is the ratings of trusted agencies, such as:

1. Rating agency Expert;
2. Publishing House Kommersant.

The main criteria for choosing an appraiser may be the period of work in the market, professionalism and reputation, the presence of a list of well-known partners who have already used the services of the company, positive