Valuing shares in Ltd company

[TheCyclingProgrammer]

When I needed to do this (to prove there were no CGT issues over a share transfer), my accountant arranged for a specialist to prepare a company valuation for a fee. It wasn't outrageously expensive, but it makes it much harder for HMRC to dispute it if you can show you've done the due diligence and not just plucked a number from thin air.

[starstruck]

Thanks all.

[WordIsBond]

Growing business or not? How stable is the income stream? How much does continued success rely on your personal involvement?

Profit is one factor, but if you are primarily compensated via dividends, profit is overstated -- it should be calculated based on what profit would be if you were paid in salary.

A company with marginal profit and high revenues is generally considered to be worth a lot more than a company with small revenues and the same profit. You've got more to work with to leverage the thing into better profit.

Are there any substantive assets?

You could talk to these people or use their calculator: https://www.company-valuation-servic...SAAEgKkzfD_BwE

Try google for business valuation or valuing a business, or pricing a business. Read the articles. Play with the calculators.

Do you want the price to be low to make it easy for family to buy shares, or high to maximise your take? Because there is no such thing as a "right" price for a business, because no one knows the future. The only real thing you can do is get a range of prices. And you can also tweak what you enter in an online calculator to move the range in the direction you want. There are enough uncertainties in business that you can honestly have a range of answers on some of the questions, and how you answer moves the needle.

If you are looking for a lower price, then find the calculator that lets you honestly but pessimistically arrive at the lowest price, print the results, and save them if HMRC ever comes asking.

You can give shares to your adult kids, you know, as long as the income is theirs and never comes back to you, and you don't die too soon. If you do this, and the tax hit would be significant if you die, you might want to take out a 7 year life insurance policy with them as the beneficiaries to cover it.

[BlasterBates]

Valuing the shares of the company is quite simple. Just calculate your average expected current profit and then multiply by the p/e ratio of the average of other companies in the same sector.

Presuming your company has no growth and taking into account the riskiness of the company I would guess a p/e ratio of between 6 and 10.

i.e. if your profit is around 10,000 assume the value between 60 and 100 grand.

[Lance]

It’s bigger than one man band. We have hundreds of clients and it doesn’t require me working to make money, I could in theory retire and it would still operate. I’m just after a way of coming up with a fair valuation of shares. I’ll ask my accountant also, but he’s on hols at moment. Thought there might be some industry standard multiple of earnings or something.

you could value it as cash in the bank. If you're the revenue generator and plan on stopping then cash in the bank is a very fair valuation.
Are the people you're selling shares to going to be working in the business? If so then I suggest you seek legal advice and get some proper contracts drawn up, including 'what to do if someone dies, what to do if you fall out, what to do if the company goes bust, etc. etc.

[Old Greg]

It’s bigger than one man band. We have hundreds of clients and it doesn’t require me working to make money, I could in theory retire and it would still operate. I’m just after a way of coming up with a fair valuation of shares. I’ll ask my accountant also, but he’s on hols at moment. Thought there might be some industry standard multiple of earnings or something.

Most of us are 1 man band Ltds here, but a few people have expanded and may be able to help - but probably this isn't the right forum for question.

[malvolio]

It’s bigger than one man band. We have hundreds of clients and it doesn’t require me working to make money, I could in theory retire and it would still operate. I’m just after a way of coming up with a fair valuation of shares. I’ll ask my accountant also, but he’s on hols at moment. Thought there might be some industry standard multiple of earnings or something.

You need to talk to someone who buys and sells businesses for a living. I know a guy, now retired, who may be able to help. Drop me a PM if you're interested.

[starstruck]

Are you a typical '1 man band' contractor Ltd, or is it bigger than that?

It’s bigger than one man band. We have hundreds of clients and it doesn’t require me working to make money, I could in theory retire and it would still operate. I’m just after a way of coming up with a fair valuation of shares. I’ll ask my accountant also, but he’s on hols at moment. Thought there might be some industry standard multiple of earnings or something.

[northernladuk]

This is going to be a very long thread. A two line question to ask about an extremely complicated situation that is highly dependent on the details, of which there are non.

Always makes me think someone knows what they are trying to do is a no no when they hide so much information.

[Old Greg]

How do I work out full market value of shares in my company? It has been around for > 10 yrs, has retained profit and existing clients. I'm investigating alloting some new shares, but understand they would need to be purchased at 'full market value' by the person concerned.

Are you a typical '1 man band' contractor Ltd, or is it bigger than that?

[northernladuk]

a

It would be the family members/friends category. They would buy the shares with their own money at full market value and any dividends they receive would never make they way back to me.

Why would you give your hard earned money away? Tax fudge to get it to the kids cheaper? Look after the parents more tax efficiently?

[starstruck]

a

Wouldn't the value really depend on the person you are selling them to. You could argue a very wide range depending on the outcome you want. If it's to sell to family members/friends you could quite easily manipulate the numbers down. If it's to a genuine investor you've got a host of less tangible factors to boost the value.

Care to share the relationship first so we can give you a better answer based on circumstance?

It would be the family members/friends category. They would buy the shares with their own money at full market value and any dividends they receive would never make they way back to me.

[northernladuk]

Wouldn't the value really depend on the person you are selling them to. You could argue a very wide range depending on the outcome you want. If it's to sell to family members/friends you could quite easily manipulate the numbers down. If it's to a genuine investor you've got a host of less tangible factors to boost the value.

Care to share the relationship first so we can give you a better answer based on circumstance?

[starstruck]

How do I work out full market value of shares in my company? It has been around for > 10 yrs, has retained profit and existing clients. I'm investigating alloting some new shares, but understand they would need to be purchased at 'full market value' by the person concerned.