Pricing and Valuations

for Cape Town Luxury Villas.com

Updated Article by Nick Ray Ball 29^th March 2016

On this page we consider different valuation methods. Which range from $117,000 to $791,000.

We consider selling the business as a Villa Secrets franchise, including all software updates for $117,000. Or as an independent business without updates for $260,000

 

Of all the different valuation methods there are for valuating a business, be it for sale or franchise, the most consistent is simply that a business is worth what someone is willing to pay for it.

Assuming the purchaser or franchisee was looking for the best deal, then we will first consider the lowest valuation possible of all methods.

This would be the discretionary cash flow to a single owner, including costs for marketing, a small office, manager replacement, and smaller expenses like fuel, and telephone bills, which equals ZAR600,000. ($39,000) (£27,300) Which over 3 years’ equals. ZAR1,800,000. ($117,000) (£81,200)

It is not in our interest to sell this business for such a sum, we would however consider this type of figure for a franchise. (with a Franchise fee of +/-4.5% on income)

Why would one wish to pay the lowest valuation of a business for a franchise? Due to free upgrades to all software Magic Menus, VS Mobile and most importantly the 92 profit increasing features of the Divergent CRM. In addition is the growth in general of the Villa Secrets Network.

Villa Secrets does not rent, buy or sell, it is a development company that exists to better the fortunes of its franchises. All Franchise fees are in effect development contributions, Villa Secrets acts in a non-profit capacity, interested only in becoming the best software and marketing platform it can be. Villa Secrets is the prototype for this complex Marco Economic Network: ‘The Theory of Every Business’
In our original valuation and pricing, (as seen below) we created a Normalised Shareholder Profit forecast (Adjusted for expected future income based on technology advances) of = ZAR 9,268,000 (plus ZAR 2,900,000 for current asset replacement). Making a Total of ZAR 12,168,000 ($791,000) (£554,000)

Given Villa Secrets commitment to creating the software and systems for our franchises to flourish, and an additional V2 website thrown into the package. We feel this is a fair price.

And as such then the lowest valuation price of ZAR1,800,000. ($117,000) (£81,200)
seems like a reasonable franchise cost. (A cost that can be made up by a commitment to marketing & staffing the business in the way desire).

It terms of an outright sale, (no franchisee fees), an offer of ZAR 3,500,000 for the current business (including its ZAR2,900,000 asset replacement value). With the same paid again over three years for software updates would be accepted. Total ZAR 7,000,000 ($455,000) (£319,000)

If considered without future software updates, as a completely independent business, we would consider offers over R4,000,000 ($260,000) (£182,000) (depending on the ‘restraint of trade (or lack thereof) conditions applied to Villa Secrets’

 

Original Article by Nick Ray Ball 10th March 2016

Using 4 different methods, the average valuation including assets is $700,000. The for-sale price is offers over $230,000.

With future software updates, that are costed at $3,000,000 available for an additional $230,000. All Itemised and paid for over 3 years’ item by item, once developed installed and working.

By applying the four most credible valuation methods from Entrepreneur.com, SmallBusiness.co.uk & EasyAccountancy.co.uk to Cape Town Luxury Villas.com the average valuation for the company including assets is ZAR 10,635,126 (£485,000) ($700,000)

The software being developed over the next three years for Villa Secrets network is set to increase profitability four fold. The current estimated development costs for this software is ZAR 65,000,000 (£3,000,000) ($4,270,000)

However, we will consider offers over ZAR 3,500,000 (£162,000) ($230,000) for the website and business. And the same again for membership in Villa Secrets and all software updates. The later paid for component by component over three years after instillation, testing and training.

For instance: Villa Secrets Mobile will soon to be one of the best mobile websites for property on the planet. We can add this to Cape Town Luxury Villas.com for R136,955. (£6,350) ($9,020). We are confident that any web development company capable of producing same would charge an awful lot more, for this technology.

On the page Cost of VSF Software and Updates and we present prices for all other software items and upgrades adding up to R3,500,000 (£162,000) ($230,000) which is under 8% of the estimated development cost.

When complete this software framework will be in way in advance of any system available for vacation rentals. The Divergent CRM is shown to already generate 92 different ways to improve profit and increase the profit of Cape Town Luxury Villas by a factor of four within three years. See part 2 of the Strategic Growth Plan for Cape Town Luxury Villas

The Magic of Cape Town Luxury Villas.com is not just in its current website and business, but as much again in the software that will be developed in the following years. Only available to Villa Secrets franchises or members.

Valuation methods

Referring once again to Aldes Atlantics 10 Points on Selling a business and this time point 3 ‘Value your business’. We are advised that the International Valuation Standards Council, suggest one should value a business by a few different methods and then create an average. However, we could not find specific example in their website, so we looked at top Google results SmallBusiness.co.uk, EasyAccountancy.co.uk & the well-respected Entrepreneur.com,  which collectively presented five different ways to value a business.

1. Multiples of shareholder Profit.

In this valuation method, one multipoles shareholder profit between 3 and five times, or eight for business with considerable assets or brand awareness. In addition, it is stated that businesses that have a lot of potential to increase profit, including business with new profit increasing technologies in development, would be seen at the higher end of the scale.

In terms of new technologies Cape Town Luxury Villas is just at the beginning of a serious investment into improved technologies as is discussed in the Strategic Growth Plan for Cape Town Luxury Villas. And Illustrated in the following pages dedicated to software upgrades that are applicable to Cape Town Luxury Villas.

a. Magic Keywords
b. Villa Secrets Mobile
c. Magic Menus
d. Divergent CRM & Marketing Platform
e. Development Cost of Divergent CRM & Other Software
Please note the development of the above, will take three years and is estimated to cost ZAR 45,000,000 (£2,000,050) ($2,900,000) to develop.

For a pre negotiated price, paid component by component only after software is working for Cape Town Luxury Villas staff. Cape Town Luxury Villas.com have access to all software updates which suggest a 400% increase in profits in year three. Hence in terms of evaluation of how many years of shareholder profit one should use we have worked on four years.

By the time a serious buyer has read through all software pages above, watched the six plus hours of video explaining what the software does, how it increases profit and how much it will cost to make. Any future owner will agree Cape Town Luxury Villas.com has a lot of potential to increase profit, and there for should use a higher multiplier when assessing the value of the business in multiples of shareholder profit.

The scale of multiples is stated to be between 3 and 5 or 8 for business with potential to increase profit. So a multiple of 5 or even 6 may be considered reasonable. However for the sake of caution we shall use a multiple of 4.

Hence the multiples of shareholder profit valuation is just over:

Value of Cape Town Luxury Villas = ZAR 4,000,000
(£185,000) ($263,000)

2. Normalised Shareholder Profits

The second form of valuation is called ‘Normalised Profits’ which is the same as the last method, but one includes and future losses or gains that are expected. We have gone into great details on this point, starting with section 2 in the Strategic Growth Plan for Cape Town Luxury Villas and in particular this Video ‘Cape Town Luxury Villas Normalised Profit’ on how our software in development creates 92 different improvements which will positively affect Cape Town Luxury Villas in its first three years. Further information is found ‘Development Cost of Divergent CRM and other Software Updates.’

The result is currently seen as

2015 Shareholder Profit = ZAR 1,018,950
Year 1 Shareholder Profit = ZAR 1,258,905
Year 2 Shareholder Profit = ZAR 2,764,743
Year 3 Shareholder Profit = ZAR 4,225,409

4 years Average of Normalized Profit = ZAR 9,268,007

Value of Cape Town Luxury Villas = ZAR 9,268,007
(£420,000) ($610,000)

3. Multiples of Revenue

The next valuation method is Multiples of revenue, where it is suggesting a business is worth between one and two years it’s revenue. For this we split the difference and worked on 18 months.
2015 Revenue = 9,155,291 (Multiplied by 1.5 for 18 months =)

Value of Cape Town Luxury Villas = ZAR 13,672,500
(£633,000) ($9,000,000)

4. Warren Buffett’s discounted cash-flow analysis

This method of valuing a business is the sort of accounting that sunk Enron, but as it has been presented by two sources we will include it for posterity, but do not include it within our calculations.

It is called ‘Warren Buffett’s discounted cash-flow analysis.’ Which in-short, links the value of a business to the interest made from investing in T-Bills at an interest rate of 3%

You can see the calculations for this and the above mentioned method in point 3 on the ‘10 Points to consider when valuing a business’ page. The result is:

Value of Cape Town Luxury Villas = ZAR 34,000,000
(£1,570,000) ($2,230,000)

5. Valuation based on Clients

It has been mentioned that a company can be valued by its clientele, which in the case of Cape Town Luxury Villas we consider as the quality of its enquiries.

No official method of valuation is mentioned, however it should be noted that 75% of the enquiries since 2014 have been stored into Cape Town Luxury Villas CRM and an analysis of the enquiries by someone who knew the industry, would likely agree with the ‘multiples of shareholder profit evaluation.’

Value of Cape Town Luxury Villas = ZAR 4,000,000
(£185,000) ($263,000)

6. Asset Replacement Value

We have spent a lot of time preparing due diligence for the value of the Cape Town Luxury Villas website, portfolio and supporting Systems. You can see the detail here: ‘Asset Value of Cape Town Luxury Villas website and Supporting Systems’

Working at an agency rate of R900 (£41) and hour we have put a value to the Cape Town Luxury Villas website, portfolio and software of R2,900,000 if one were to start from scratch, build the website, build the SEO software which generates 25% of enquiries from free searches, make the winning AdWords Campaign and recruit the largest portfolio of Cape Town villas available any ware.

Note the Cape Town Luxury Villas was created from www.CapeVillas.com who have been recruiting properties since 2002. CTLV is in effect the new version of the Cape Vilas.com website and has access to the entire cape Villas property database alongside Razor properties and 150 new properties added since 2014. Soon it will also link and provide online bookings for Nox Rentals, Village and Lifer and Nightsbridge PMS.

Asset Replacement Value of Cape Town Luxury Villas = ZAR 2,900,000
(£134,000) ($190,000)

Now to make a final valuation, we pick all valuations except Warren Buffets and make an average then add the value of the company’s assets.

Multiples of shareholder Profit. = ZAR 4,000,000
Normalised Shareholder Profits = ZAR 9,268,000
Multiples of Revenue = ZAR 13,672,500
Valuation based on Clients = ZAR 4,000,000

Average Valuation of CTLV = ZAR 7,735,126
(£358,000) ($510,000)
Plus Asset replacement cost = ZAR 10,635,126
(£493,000) ($700,200)

Note, ZAR to £ & D conversions vary slightly between Feb 2016 (used on spreadsheet) and March 2016 (used to compile this page)
ZAR = $0.066
ZAR = £0.046