Does my limited company have any value??

[The Digital Channel]

I am taking control of a limited company, I currently have 50% share holding, my business partner has another company and is focusing his attention on that, leaving me the option to use the exsisting company rather than forming a new one.

The company was formed in Jan 2007, and was set up as a lifestyle business with nominal overheads and strong profit margins.

Its first years turnover was £38K with £31K profit, which was drawn by me and my partner as earnings.

I have a few questions;

Is a company with such limited trading history worth anything?

Can a company with the above trading history obtain finance to develop and grow? without personal guarantees.

Because its a limited company, how much of a factor our company directors with sound/good credit ratings?

[Brian Turner]

On the issue of lending - I recently approached RBS to sound out a loan. There response was incredibly negative, and to be honest, I thought incredibly cheeky.

Despite never ever having run up debt, always in profit, and having done so for 4 years, with strong income, brand clients, and high cash reserves, the bank's attitude was basically that if there was no immediate way to claim the cash back, then they would be unlikely to lend.

Banks hate the internet and anything difficult to assign clear value to - if I had been a bricks and mortar with premises they could repossess, I would have been in better standing, apparently.

In other words, the bank would only basically provide liquid value equivalent for assets I could not easily liquidate, and the bank would only lend up to the amount of those assets.

I'm really hoping it's not a typical experience, but it's hard not to be cynical.

[The Digital Channel]

Originally Posted by Brian Turner

On the issue of lending - I recently approached RBS to sound out a loan. There response was incredibly negative, and to be honest, I thought incredibly cheeky.

Despite never ever having run up debt, always in profit, and having done so for 4 years, with strong income, brand clients, and high cash reserves, the bank's attitude was basically that if there was no immediate way to claim the cash back, then they would be unlikely to lend.

Banks hate the internet and anything difficult to assign clear value to - if I had been a bricks and mortar with premises they could repossess, I would have been in better standing, apparently.

In other words, the bank would only basically provide liquid value equivalent for assets I could not easily liquidate, and the bank would only lend up to the amount of those assets.

I'm really hoping it's not a typical experience, but it's hard not to be cynical.

I thought that would be the case..... how about my question on does the company have any value??

[Brian Turner]

That's a more complicated one that an accountant would really need to approach - you have sales, customers, and therefore goodwill - which is especially hard to price up. So it would really need an accountant's input, I think, on what sort of basis to assign value and reach the basis of a figure to work with.

[Peter W]

A company that is 18 months old is worth very little by itself. After 10 years, it might be worth a bit more, but not much.

Other than that, there are 2 aspects.

The balance sheet. What tangible net assets are there in the company? In other words, if you sold all your equipment, collected all your debts, and paid off all your creditors, loans, taxes etc how much money would be left in the bank? This should give you a minimum value for the company.

The goodwill. This is the value of your business name, know-how, customer list etc and is very difficult to value. How much is the business dependant on you as a person? How much work was needed to earn that £31K profit? If it was a full time job for 2 people, the goodwill is not worth very much. If it required hardly any work, the goodwill could be worth over £50K. It would also be worth more if the business was on a steady upward trend, as the future is more important than the past.

Overall I agree with Brian - you need input from an accountant or a business transfer agent. They will look at your particular situation in detail, but will focus on the issues that I have mentioned.