How to Value a Business Without Financial Information

This was my response to a question from a business owner that didn’t have financial data available, but wanted an estimate of value:

“Great to hear from you. I wish it was as easy as just doing a ballpark estimate, but the problem is that once I get the financial information I’m going to make so many changes to the initial information that it’s unlikely to bear much resemblance to the financials and tax returns. I’m going to take out expenses that aren’t ‘necessary’ to operate the business and I’m going to bring in hypothetical expenses from a buyer’s point of view. After I do that, I will assess the risks of the business and come up with a capitalisation multiplier of probably between 2 to 4 times, depending on how comfortable I would feel as an investor. I’m not trying to dodge the question, I’m just saying that it’s impossible to give an estimate without the underlying financial data.

But if you want a ridiculous and totally unreliable estimate: If the business is really making around $50k after all of my adjustments (which is a massive assumption), then you would probably be looking at a value between $100k and $200k assuming that it could be operated seamlessly by a new investor. This would typically include all necessary equipment, fixtures, fittings, stock and goodwill within the price.

I wish I could help you more, but even an estimate usually takes days or weeks to do. But remember your baseline value (excluding any goodwill) would be the resale value or replacement cost of the assets, less any core liabilities. With favourable financial information and a good story to tell, you should be aiming to achieve a significant amount of goodwill on top of this.”