Home – New Forums Money matters Raising funds by selling shares to friends, fools and customers Reply To: Raising funds by selling shares to friends, fools and customers

Tim Ahern
  • Total posts: 16
alex_hill, post: 228442, member: 76908 wrote:
Sorry, but I can’t help but comment on the value of your offer before giving some advice. Based on your offer you are valuing your company at $500k. With a turnover of $100k (and no info provided on costs/profit) there better be something big and almost guaranteed on the horizon for me to consider that offer as a “steal”. The general rule of thumb for valuing a small business is between 0.5 and 4 times EBITDA (plus inventory), depending on the industry. Being software related the valuation is likely to be on the lower end of the scale due to the lack of physical assets and rapid technological change will can lead to product obsolescence much faster than other industries.

Either way, what you are looking at doing is very complex and I doubt someone could draft up the requirements for less than 1k – especially with an agreement that will cover all the possible loopholes around the redeemable component of the shares.

You also need to consider an exit strategy for the purchasers of these shares – considering they are not going to be traded on the ASX they are not considered a liquid asset. While the proposed conditions of a potential 100% profit in 12 month may be attractive, without a marketplace to dispose of those shares your customers may be a bit hesitant to buy in.

That said, you know your business and your customers better than I do, so if they happen to like the idea then it is a viable way of raising funds – but don’t try and do it on the cheap as it could end up costing you a lot more in the long run.

Thanks Alex. I hope this also helps WebDeve but i have always wondered what the rule of thumb is for selling a small business. Your .5 to 4 EBITDA rule is now firmly stuck into my head.