We were engaged, as Business Valuers, to assess the fair market value of a small Clipper Sharpening Business to be bought by the daughter of the business owners who were retiring. As the parents have a number of children, the daughter had to present a professional independent valuation of the business in order to arise at a figure to purchase that would be fair to the other siblings, hence our involvement.
On paper the business appeared to be a great little business. It had been trading for a long time, sales were increasing, many of the clients were repeat clientele, small overheads and healthy profit margins.
Dig a little deeper and given the unique skill required in tool sharpening and the experience the father had, we discovered that the father’s role within the business was almost irreplaceable. Therefore this sparked further investigations into the future viability of the business, remuneration of a new employee if the father was replaced, how the new employee role would be structured, what would happen if the father was not replaced and how this would affect sales, client behaviour and expenses.
In short it was decided that the more likely scenario would be that the father’s role would not be replaced. As this would most likely be a view taken by any prospective buyer, that when the father retires so does much of the goodwill within the business.
In conclusion, the business would still be viable and provide a healthy income for a single operator, however given such uncertainty a lower multiple of PEBITDA was utilised. This lower multiple of PEBITDA was also supported by the small pool of potential buyers and their likely limited financial resources for such a purchase.
This was a case whereby a valuation of a business can not just be assessed purely on the numbers and how the need to be careful when using online or cheap business valuation tools