The ‘value’ of knowing what your business is worth!
So, it's your baby, you’ve built it up from nothing, and your life revolves around it. No, we’re not talking about your toddler here - running around after a two-year-old is nothing compared to the care and nurturing required to keep your business thriving!
But after all those ‘Yay!’ moments and sleepless nights, the blood, sweat, toil, tears and cash that you have no doubt sunk into it, do you actually know what that investment represents?
A recent European-wide survey by mergers and acquisitions experts Marklink revealed that around a third of UK business owners don’t know their company’s value.
So, the question is, do you?
The value of your business is not just a number, it is a measure of the growth you have achieved through your efforts and hard work. Plus, there are many situations that may mean you need to know the exact value of your business or understand its market worth. For instance:
- Annual benchmarking & strategic reviews – business value, alongside data, such as revenue, turnover and profit, can help you to make strategic decisions including investments and operational improvements, as well as provide a measure of success.
- Mergers or acquisitions – most business sales will require an accurate valuation that reflects market rates to ensure a fair price for both you and the buyer.
- Investment opportunities – investors will need to know the value of your business to assess risk and potential return on investment (ROI).
- Estate planning – if you’re intending to leave your business to someone after your death you will need to know its value so you can look to mitigate the tax burden from IHT.
- Exit and succession planning – when thinking about your retirement, you’ll definitely want to take into account the value of your biggest asset.
- Divorce proceedings – in most cases your partner will be entitled to half the total assets you shared as a couple, so a valuation will be needed to assess this.
- Early stages of business sale – once you know what your business is worth, you will be able to have meaningful discussions with potential buyers.
- Tax planning and HMRC disputes.
Of course, one of the best reasons for having an accurate picture of your company's value is that, with the right expert advice, it puts you in a great position to improve it. The information gleaned during the valuation process will help you understand how different parts of your business contribute to its overall worth and identify areas of growth and strategies that will boost it.
Trust Our Experts
Valuations can be complex and there is always a subjective element, but as an important benchmark for the growth and success of your business and as a tool for attracting investors and buyers, or resolving legal disputes, they need to be as accurate as possible.
If you look up business valuations on Google there are any number of online platforms offering instant valuations for a fixed fee but beware of relying on these services. On the whole, they are intended for investors and potential purchasers to carry out research ahead of making a direct approach and as such are more of a bargaining tool than an accurate reflection of a business’s true worth.
To get a meaningful valuation you will need to use a method that best suits your individual business, and this can vary widely based on what sector you operate in, how the business is structured, and how its assets are distributed.
An expert valuer will usually use at least two methods to arrive at a range of values, these include a mix of:
- asset value – this is one of the more straightforward forms of valuation, which involves adding up the total value of all assets owned by the company, including tangible assets such as land and intangible assets such as brand reputation and goodwill;
- discounted cash flow (DCF) – this requires accurate cash flow projections as it calculates how much a business could be worth in the future by determining the present value of future cash flows;
- market capitalisation – mainly used for public limited companies with shareholders, this valuation technique multiplies the current share price by the total number of issued shares, to provide a useful picture long-term, but may be impacted by market volatility as a one-off calculation;
- revenue or earnings multiplier – calculating the maintainable profits of a business and multiplying it by an industry-specific standard multiplier.
Then there are the intangible elements that can add to the company’s worth, things such as strong contracts with key customers or suppliers and management stability.
All these tried and trusted techniques combined will provide you with a true, fair, well-informed and defensible commercial valuation.
Richardson Swift has
an expert team dedicated
to business valuations,
led by associate director
Michael Coomer.
For more information
or to book an initial
free consultation
contact Michael here.
