Valuing a business for sale

Airtids · Post by **Airtids** » Sun Dec 09, 2007 4:23 pm

Not sure if this is the right forum for this, but...

We're selling our business (406/702/703/AMO), and have been given a few different ways to value it. The assets are all pretty straightforward (easy to determine the value of an aircraft, or a hangar, or whatever), but the concept of goodwill has us a bit confused. We have contracts in place, an established clientele, and other folks lined up, ready to go when the doors re-open in the spring. Basically, business as usual.

Does anyone have any experience in this sort of thing? I'm giving it until May before we start to liquidate, but we're scheduled to re-open March 1, 2008, and completion by that date would make for a seamless transition. We've had a few inquiries already, I just don't know what to ask/hope for.

Thanks for any help,
Tids

Wasn't Me · Post by **Wasn't Me** » Sun Dec 09, 2007 5:24 pm

look at the revenue generated and see what kind of loan it could carry for aperiod of 5 or 10 years. or look at the net profit and multiply by 10 to 15 add the net assets and see what the market bill do with the number.

Cat Driver · Post by **Cat Driver** » Sun Dec 09, 2007 5:49 pm

Robin:

The question is very difficult to answer, if you can get out with some extra money in your pocket after the dust clears you are doing very good for this sector of aviation.

In the final analysis the good will, will depend on how bad the buyer wants your business.

Anonymous1 · Post by **Anonymous1** » Sun Dec 09, 2007 8:55 pm

Good question. Valuing goodwill is simply an exponential of your risk adjusted forward earnings. The more assured the buyer is that the earnings will continue rising at their present growth rate, the more they will be willing to pay in comparison to another business within the same market segment. If you can include current staff as part of the sale to ensure the ops manager, director of maintenance and chief pilot stay on for a guaranteed time period, this will make your business more attractive. Very stable, long history of growing earnings, strong barriers to entry, etc. can see you get 7 X average last 3 years earnings plus value of depreciated assets. A well run, profitable 703 with an excellent customer client base (diversified, loyal, etc.) and low staff turnover could see 2.5 - 3 X earnings. Why not consider a straight operating lease for the assets and 3X forward earnings amortized over 10 years @ 7% or something, say with a 25% downpayment? This way, you keep title to everything and your only risk is if he runs it into the ground and you don't collect on the remaining 75%. Again though, get proper advice from a small business consultant experienced in aviation concerns as free advice is worth exactly what you paid for it..

PM me if you need some help...

Dust Devil · Post by **Dust Devil** » Sun Dec 09, 2007 9:44 pm

I found that banks usually give goodwill next to nothing for value. Existing contracts are gold depending how they are written. This can tie the hands of alot of potential buyers if they are being financed by a bank as to what they can offer you for a price. Having real assets is what will drive the value of your company up.

Phlyer · Post by **Phlyer** » Sun Dec 09, 2007 10:53 pm

I thought you were very happy doing what you do Tids.
What will you do if the business sells?

Airtids · Post by **Airtids** » Mon Dec 10, 2007 8:10 am

foto:
See this- http://www.avcanada.ca/forums2/viewtopic.php?t=37543
I did enjoy what I was doing, but several factors have convinced me it's time for a move. Change is good, right? Absolutely no regrets.

Everyone else, thanks. Anonymous, that is very interesting. For me, when I'm out, I'm out all the way. I don't have the time, energy, or gumption to continue to play a role in the business once it's sold. I'm going to be pretty busy with my new gig, and as such, I want to be 100% focussed on that, no distractions. One of the methods we've been looking at is triple net revenue averaged over the past 3 years, which actually comes out very close to the methodology outlined by Wasn't Me. However, as I'm the one wearing most of the hats here, there will be some major 'staff' turnovers! Naturally, this will lower the value.

., we've been really aggressive about paying down the debt on the assets, and still managed to make money. It would be easy enough for me to just liquidate the assets, and walk, but I'd like to see the business continue because I think it's great for the community, a great opportunity for someone else, and I'd like to think the past 8 years of my life have been worth more than just a few assets! I do, however, have an opportunity to take much of the equipment and a lot of the business into the new operation as well. Time will tell.

groundtoflightdeck · Post by **groundtoflightdeck** » Mon Dec 10, 2007 8:45 am

The quick and dirty formula I have is assets+goodwill... goodwill= 2x last years net profit (after tax). This works provided the finacials are stable and in good order.

Phlyer · Post by **Phlyer** » Mon Dec 10, 2007 10:36 am

Best of luck Robin. I got in touch with you when I was trying to set up my aerial photography business and I did manage to get it going (it still is years later, but not by me) so I know how much of your heart and soul goes into that.
Two major moves across the country, two kids, four different companies and two houses (with renos) later, we are in a good place.
Change is indeed good.

Phlyer · Post by **Phlyer** » Tue Dec 11, 2007 7:05 am

clunckdriver
I'm touched by your morals. It is unfortunately unusual these days for employers to take the high road and look out for their employees. I for one have worked for enough shady operators that it sounds as if you were one of the good ones. A few years back I'd be sendning you a resume! Good for you - and I hope the next stage has it's own rewards for you.
Foto