Most businesses and companies are all as different as the people who run and work in them with each having their own peculiarities and way of doing things. Some businesses maybe very profitable whilst others may have valuable assets such as plant, machinery and property. This makes it very difficult to compare any two businesses like for like. What we can do however, is to consider how much a business is worth by using a recognised valuation method, except that there are at least 5 of these and sometimes two or more methods are used when determining a value.
Why Have a Business Valuation?
Why do people get their business valued? It might be that the owner (or owners) of the business are considering selling some or all of their shares within the business, or that a buyer is looking at purchasing a business and that the purchaser needs to know what the business is worth “on paper” before making an offer. It might be on the death of an owner, or for drawing up a will, divorce or it might just be because the owner of the business wants to know what he or she is worth. There can be any number of reasons for wanting to know the value of a company or business.
How do you Value a Business Then?
This is where things get complicated as the recognised business valuation methods include: P:E ratios or multipliers, discounted cash flows, entry cost, industry rule of thumb and asset based valuation methods. Although a minefield for the uninitiated, the trick is to understand the most appropriate method(s) for the type of business being valued. Further information on how businesses are valued is available from the following link by Clicking Here.
What’s the Starting Point for a Business Valuation Report?
The starting point in producing a business valuation report is to work from full sets of statutory accounts, preferably covering the last 3 years of trading, up to date management accounts and a budget or forecast for the current year. The Valuer will often have quite detailed questions and will need to know if any exceptional costs are likely to keep recurring or if just a “one-off”. As most business owners either pay themselves too little money or too much, the Valuer will need to understand what a realistic figure would be for someone running the business, to ensure that the valuation report provides a fair and realistic figure. Other points to consider are type of business, spread of turnover, types of customers, years of trading, depreciation, trade marks, IP, key employees, future business potential and so on!
To find out how you can obtain your independently prepared, professional business valuation letter or report, including a sample valuation letter & report, simply complete the form below: