International Financial Reporting: What price to pay to invest in a firm?

Deciding how much to pay can be a difficult decision

With most start-up companies reliant upon outside finance to get them on their feet, they represent a wealth of investment opportunities. Read original article

Yet how does an investor best calculate what would be an appropriate price to pay, and for what stake in the new business?

Here Peter Ferns, director of NatWest business banking, takes a closer look at the issue.

He also explores how budding under-18 investors can hope to secure financial support.

QUESTION
Elliott Rigby, Glasgow, Scotland
If you are investing in a new small firm, how do you work out what would be the correct price for the correct percentage of the business?

ANSWER
Peter Ferns, director of NatWest business banking
I would suggest you seek guidance from an accountant who, using the information available on the business, will be able to give you a good indication of a reasonable price to pay for a percentage.

A number of different factors would need to be taken into consideration, including the assets, potential business performance, location, customer base and demand.

Ask Peter Ferns a question

It is also worth using the internet to gauge the price of similar businesses in the area.

Contacting your local council is also advised, as they will be able to give you a good idea as to whether or not the location and the surrounding area is marked as a potential regeneration zone.

I would also advise that you look at the numerous business support websites that provide in-depth, useful information.

QUESTION
Mark Gould, London
Is it possible for someone under 18 to gain a business loan?

ANSWER
Peter Ferns, director of NatWest business banking
Under UK law those under the age of 18 have limited powers to enter into contracts, including borrowing agreements.

Therefore, as responsible lenders, Banks do not wish to encourage borrowing by those who may not be fully aware of the obligations and commitment that a business loan may entail.

As such, banks generally do not lend to minors as we believe that this is in the best interests of the individual and the bank.

There are however alternative organisations that may be able to assist you in raising funds for a business venture.

These include the Prince's Trust, which has various resources available to those aged 14-30 looking to start up in business.

Of course, your local bank's business manager should also be pleased to offer advice and guidance in many aspects of starting your own business.