company valuation

Valuation Formulae

> When considering the purchase of a survey company, what are typical valuation formulas that a buyer might consider?

Well, 1 British Pound Sterling = 1.67 US Dollars would be one.

In San Francisco, probably 1 Chinese Yuan = 0.16 US Dollar shouldn't be overlooked, either.

2-3 times gross profit.

Don't base it on revenue, unless you want to buy a company that is losing money.

> When considering the purchase of a survey company, what are typical valuation formulas that a buyer might consider?

Valuation Formulae

> > When considering the purchase of a survey company, what are typical valuation formulas that a buyer might consider?
>
> Well, 1 British Pound Sterling = 1.67 US Dollars would be one.
>
> In San Francisco, probably 1 Chinese Yuan = 0.16 US Dollar shouldn't be overlooked, either.

Well then ... how about a rial?
How about a krona?
Sounds like you are being a money changer. There was this feller a couple thousand years ago that might have something to say about that. 😉

If gross profit is consistently 1/2 of revenue, then 2 times gross profit is identical to 1 times revenue. If the business is losing money, then you should be able to get the clients without paying anything, but you may have to wait a while.

Think in terms of return on investment. Suppose you want an 8% return and you think that the business will earn $50,000 per year after tax. Then the price you would pay is $50,000/.08, or $625,000. Alternatively, look at cash flow instead of net earnings and do the same calculation.

If the business is generating negative cash flow, then it's going to drain cash until you turn it around, so you would pay less up front, or wait for it to go broke and then solicit the clients.

First and foremost ask yourself: "Why am I doing this?" If you don't have a strong definite goal in mind, then walk away.

“When considering the purchase of a survey company, what are typical valuation formulas that a buyer might consider?”

Ask to view their tax returns and financial statements for the past five years.

As far as “typical valuation formulas” there are none.

Your examination of the financial records will assist in negotiating “good will”, which usually means how much cash up front to purchase.

Due diligence is foremost, best of wishes. B-)

The last 5 years of tax returns will not tell the picture due to the depression we mired through . I would look at this year and last to get a current picture . Personally I would not buy a company besides the tangibles they have . Dont think your buying clients . Last time I checked they were free , just go get them.

Companies are built on personal relationships and you cannot buy that .

“The last 5 years of tax returns will not tell the picture due to the depression we mired through .”

It would indicate, at least to me, their survivability during a difficult economy as well as the respective profit/loss statements.

“Dont think your buying clients .”

Sorry, don’t understand that one. 😉

currency trader

not thanks any way Mr Arrowheadinderman

I have seen 1.5 x gross revenues used in the past. I dont think its a particularly good barometer. I would look at gross profits instead. Buying a survey business depends a lot on the type of business model, employees, equipment and customer base. For instance, buying a sole proprietorship is a crap shoot. I watched as a large engineering firm (where I worked) bought a small surveying firm. They overpaid many times and lost their shirt when almost all the clients went elsewhere. I was tasked to inventory the equipment and laughed at the ridiculous valuations the surveyor had placed on things. Caveat Emptor!

"...I would look at this year and last to get a current picture..."

I have never heard any buyer say that they did "too much" due diligence. Maybe you have?

Do not forget the phone number. How many drawings have the phone number on them? How many clients call because that's who they used before.

Many buyers focus on the wrong Rolodex, so to speak. Don't worry about who the seller has in his Rolodex. Think about who's Rolodex the seller is in.

okay, I think I understand what profit is but what is "gross profit"?

Gross Profit

My question is how much liability are you accepting? If you change the name of the company, you limit it some. Do your due diligence.