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UKSolicitorJA
UKSolicitorJA, Solicitor
Category: Law
Satisfied Customers: 4312
Experience:  English solicitor with over 12 years experience
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When valuing a business for exit purposes for one of the directors,

Resolved Question:

When valuing a business for exit purposes for one of the directors, does directors loans,mortgage and overdraft come off of the valuation figure. Also is it normal practice to use one years net profit to calculate goodwill?
Submitted: 3 years ago.
Category: Law
Expert:  UKSolicitorJA replied 3 years ago.
Hello,

Not all Solicitors are experts at valuing businesses as this is more of an accountancy function. Solicitors normally advise on the legalities of the transaction.

There is no set formula as such for valuing a business for exit purposes and it all depends on what has been agreed and what is provided in the Articles of Association, if anything.

In my personal experience, directors loans, mortgage and overdrafts all affect the balance sheet of the business and should be included in the valuation. 1 year for calculating goodwill appears to be a very short period of time if the business has been in operation for several years.

From what you have said, I would go with the advice of the experts who are specialised in valuing similar businesses.

Hope this helps
Customer: replied 3 years ago.
If a business has been running successfully for 6 years, and the net profits for those 6 years have been over £250,000 would it be fair to use three times net profit to calculate goodwill.

Lynne
Expert:  UKSolicitorJA replied 3 years ago.
I think there is more to goodwill than that.

I would suggest that you look at this article which gives a good idea of the different ways valuation of goodwill can be approached

http://www.accountingweb.co.uk/article/goodwill-calculating-simplified-valuations/538023

Hope this helps
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