How JustAnswer Works:
  • Ask an Expert
    Experts are full of valuable knowledge and are ready to help with any question. Credentials confirmed by a Fortune 500 verification firm.
  • Get a Professional Answer
    Via email, text message, or notification as you wait on our site. Ask follow up questions if you need to.
  • 100% Satisfaction Guarantee
    Rate the answer you receive.
Ask UKSolicitorJA Your Own Question
UKSolicitorJA, Solicitor
Category: Law
Satisfied Customers: 4312
Experience:  English solicitor with over 12 years experience
Type Your Law Question Here...
UKSolicitorJA is online now

When valuing a business for exit purposes for one of the directors,

This answer was rated:

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?

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 4 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.

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

Hope this helps
UKSolicitorJA and 2 other Law Specialists are ready to help you