SME Valuations

SME Valuation techniques are a trade off between the size of the SME (and therefore the costs it can bear to pay for a valuation), and the need to capture the the performance of an individual SME performing well, or the benefit of a cutting edge innovation that would be undervalued by standard Relative Valuations (Revenue and EBIT multiples) used by valuers in the market place.

SME's that are in mature market places with little difference in how they operate with respect to their industry, would be best advised to use the Relative Valuation Technique (Revenue Multiples, EBIT Multiples etc.) provided by most business brokers.

SME's who have either grown significantly, or are confident of sustaining their competitive advantage would be better served to structure their businesses to capture the 'Earnings Value' of the firm. This makes their value proposition visible to prospective buyers (See Earnings Valuations above) and allows them to capture the Shareholder Value they have created before they exit their businesses.

SME's at the cutting edge of innovation invariably find themselves 'racing for the future' and in a position where they are looking for a large player to partner with to take them to the world at large. 

Learning to make strange bedfellows with a crocodile is an artform they need to develop, to stay ahead of the game, and protect their interests. Earnings valuations supplanted with Contingent Claim Valuations provide a fairly good way ahead to such SME's, as they allow these SME's to capture the value of future earnings in way that mitigates their risks. Structuring these strategic Alliances in a way that allows these SME's to share the risk whilst preserving the upside value of their innovation is critical.

Allan Rodrigues and Sam Fairhall of The Business Farm specialise in growing cutting edge companies and in strategic alliances and joint ventures between SME's and large players in the marketplace.