Valuing a small business

We have a privately owned company. We are about to take on a new Director and wish to give him a % stake in the company in the form of a shareholding. We are unsure as to what % of the company is warranted. To assist us in this, we feel that we need to find the current approximate value of the company. On-line searches are giving various options for calculation and I am unsure which route to go?
The company is profitable and has assets. Is it as simple as Value = Assets + multiple of annual profits (or multiple of projected annual profits). Is this too simple? I understand the sentiment that value is what one is willing to pay, but we need something tangible here. Help much appreciated.

Generally the value of a business is taken from the Balance Sheet.
Fixed Assets + Net Current Assets ( Current Assets less Current Liabilities)
The notion of future profits is represented by Goodwill but this is an intangible figure and is normally negociated when a business is being sold.

callybags said:

Generally the value of a business is taken from the Balance Sheet.
Fixed Assets + Net Current Assets ( Current Assets less Current Liabilities)
The notion of future profits is represented by Goodwill but this is an intangible figure and is normally negociated when a business is being sold.

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A lot also depends on the sector you are in, service vs products etc.

MichaelBurke said:

A lot also depends on the sector you are in, service vs products etc.

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...and the general business environment at the time of valuation, which wouldn't bode well at the moment.

Yes you might take note of what is on the Balance Sheet, you might consider past profit levels, and you might try to project future profits. But, having done all that, it finally comes down to a judgement call.

Why would you want to give somebody a shareholding?

To answer a few questions raised :
We are in a Services sector.
The general business environment is actually ok for us at the moment.
The reason we would 'give' a shareholding is that we are pursuing this Director and want him on board. We think that he will make a big difference to the company and by offering him a shareholding, we hope to get him 'bought in' more than a simple 'fees package'. We would intend 'giving' this shareholding over a number of years (possibly 2% each year for 5 years). This person would bring a new dimension to our company and we really want him on board.

In the service industry it could be a value of the t/o, this value depends on the potential for repeat business. In my industry (insurance) the potential for repeat business is quite good (ie renewals) so the value might be higher than where there is a higher proportion of one off sales.

Given what you say I suspect you have a good portion of repeat purchasers.

If you have a representative body in your industry they may be able to assist you, otherwise your accountant might have some advise to offer.

There seems to be an extra factor other than valuing the business as it is now; there is a perception that the value of the business would be significantly increased by having this person on board.

It looks to me as if the good trick would be to find a way of sharing this added value with the new director. So I think you should take MichaelBurke's advice about adopting a method appropriate to your industry, one that is not too difficult to apply, because my idea is that you apply it annually. Use it as a basis for devising a scheme to give your new director shares that reflect the growth that he (let us hope) has helped to bring about.

You need to sit down with a good numbers specialist (typically an accountant, but not all accountants are good at this type of thing).

some good advice there, particularly form the last poster. Thank you.....