Entertainment One – Raiding the Piggy Bank

Normalisation is crucial when determining a business valuation.

Entertainment One, the makers of the popular Peppa Pig children’s series, finds itself hogging the spotlight for all the wrong reasons after awarding a bumper pay and bonus deal to its boss. A shareholder revolt is building.

But what if you are your own boss, you don’t have any shareholders to answer to, and you have your nose in the trough? As an owner, it’s your call what you want to do with your money – but will it become a problem if you decide you want to sell your business? Surely it sends the wrong signal to potential buyers. Plus, the profitability of your business will be dented by your generosity to yourself – won’t it?

There’s no need to be overly concerned. There is a cure for this situation, and it’s called normalisation. Normalisation can play a significant role in determining a business valuation. It is the process in which earnings are adjusted for seasonality, unusual revenue and expenses or non-recurring items. Normalised earnings help business owners, corporate advisers and other interested parties understand a company’s true earnings from its normal operations. One of the most common adjustments involves an owner’s salary or bonuses.

The Pomanda business valuation tool gives business owners the ability to normalise their earnings as well as make assumptions on future expectations to see what their business may be worth. Sign up for the free trial here.

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