I was engaged to value a building company by the client’s accountant for taxation purposes. The business focused on government contracts for schools and was still in its growth phase. Despite this, the business was quite sizable, employing a decent number of staff and sub contractors. My calculations of adjusted EBITDA (Earnings Before Interest Taxation Depreciation and Amortisation) resulted in a figure over $2,000,000. This figure had been growing in recent financial years.
As I dove further and further into the business, I discovered that it’s structure was very centralised and the business realised very heavily on the two owners/directors. With questioning I discovered that the two owners negotiated all tenders and recruited the sub contractors for the projects. There was no training provided to other employees to take over, nor was there a set of procedures to follow.
As a result of my findings I concluded the likely buyer would most likely be an organisation or someone looking to increase their market share. Thus my final value was quite low considering.
Unbeknownst to me at the time of conducting this Valuation, two other high-profile accounting firms were also engaged to value the same business. The other two accounting firms gave the business a much higher value, however were discounted as their investigation was only limited to the financial performance of the business.