Simon Cook: Business Valuations 101

Back in my corporate finance days, I was knee-deep in valuations and financial due diligence for small businesses. I always joked with my boss at the time that it was the easiest job ever. Just figure out the profit, or what we finance folks call the normalised EBITDA, and then you multiply it by three. 

But why three times? Why not two or even ten? 

I’m Jason Andrew, and this is Stark Naked Numbers – the podcast that strips down the numbers of business, investing, and wealth creation to help you become a better entrepreneur and investor, and ultimately build your net worth. 

In this episode, I'm joined by my good friend and valuation nerd, Simon Cook. Simon’s a chartered accountant, and an expert when it comes to valuing businesses. 

Today we're giving you a masterclass in small business valuations. If you're an entrepreneur that's either buying or selling a business, listen up. This may give you a slight edge at the negotiating table.

Links:

Follow Simon Cook on LinkedIn. 

Subscribe to Stark Naked Numbers on Apple Podcasts, Spotify, Stitcher or wherever you get your pods.  

Want the secrets the other accountants won’t give you? Follow Jason Andrew on LinkedIn.

To learn more about uncovering your financials, unlocking your cash and unleashing your cash, visit starknakednumbers.com.

Show Notes:

(01:52) – The difference between price and value.

(04:00) – How to value a business: forecasting future cash flow and investment risk.

(12:21) – A cautionary tale of WeWorks “tech company” debacle. 

(15:20) – Establishing a discount rate or required return.

(17:55) – Investing in private companies and grappling with liquidity.

(22:35) – The pitfalls of relying solely on the multiples model for business valuation. 

(47:58) – Applying multiples to EBITDA versus cash flow.   

(01:00:02) – Enterprise value versus equity value: What’s the difference?

(01:06:16) - Working capital adjustment in the valuation process

(01:10:23) – Deciding between revenue-based multiples and profit-based metrics

Every number tells a story.
The problem is that for most people, your finances are an overwhelming, over-complicated mystery that you’ve just never had the time or the energy to unpack.
I’m here to help you with that.
Hi. I’m Jason Andrew – chartered accountant, business owner and financial voyeurist – and this is Stark Naked Numbers.
It’s the podcast that strips down the numbers of business, investing and wealth creation to help you become a better entrepreneur and a better investor, and ultimately build your net worth.
We’ll explain financial concepts with real, practical examples; we’ll break down successful – and unsuccessful – businesses to find out what makes them tick; we’ll get leading business people to share their strategies with us; and we’ll unpack high-profile deals and transactions, digging into the digits and details behind the headlines.
To make sure you don’t miss it, subscribe to Stark Naked Numbers on Apple Podcasts, Spotify, or your podcast app of choice now.
Want the secrets the other accountants won’t give you? Follow Jason Andrew on LinkedIn.
To learn more about uncovering your financials, unlocking your cash and unleashing your cash, visit starknakednumbers.com.

• No. of episodes: 17
• Latest episode: 2024-07-22
• Business Entrepreneurship Investing

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