Business Valuation

An accurate business valuation is extremely important when it comes to selling your business, otherwise, you could end up getting a lot less than your company is worth. There are many reasons for selling a business, from retirement to internal shareholder disputes. When such a situation arises, a valuation is one of the first things that need to be carried out. Valuing your business involves using a set of procedures to determine the market value of someone’s interest in your company. There are numerous methods that can be used, some more relevant than others.

Hiring an advisor

One of the best things you can do at this stage is to hire an advisor, and they will be able to value your business for you. If you undervalue your company, you will, of course, regret it, as you will end up missing out on a considerable amount of money. However, over-valuing your business is just as detrimental, as you will struggle to sell your company because the high price tag will put credible buyers off. Plus, business owners always tend to believe their business is worth a lot more, as it’s difficult to be objective when emotions are involved. This is why you should always use the assistance of an advisor with expert qualifications (Chartered status). An advisor with experience will not only be able to offer a professional, detailed set of calculations, but an opinion on the market value by comparing with other transactions, particularly in your sector.

Approaches to business valuation

There are three fundamental approaches to measuring the worth of your company, as outlined below:

  • Income approach – This approach involves determining the future economic benefits that will be generated by the business, which is then compared with the required rate of return. A number of different methods can be used to apply this denominator/numerator relationship, including excess cash flows, capitalised cash flows, and discounted cash flows and profitability multiples.
  • Asset approach – This involves utilising one or more methods that are based on the valuation of the assets net of liabilities. To use this approach, you will begin with the balance sheet, after which you will need to restate liabilities and assets, where needed, to fair market value. Finally, identify any liabilities and assets that have not been recorded, and the effect they will have on the valuation.
  • Market approach – Finally, there is the market approach, which involves using comparable analysis to decipher the entity’s valuation. There are a number of different valuation approaches for this method,but ultimately the market knowledge of the advisor is key here.

Hopefully, you now have a better understanding regarding business valuation. When selling your business, it is worth remembering that this valuation can be exceeded by up to 50 per cent by finding the right buyer. The right buyer has more to gain from buying your business, and will pay more. Here at Kingswood Business Sales, we can help you to find such a buyer through targeted marketing and better insight. So remember, when selling your business the valuation is never more than a guideline, as the only true valuation of the business is the price that someone will pay for it and at Kingswood, we’ll be happy to help you get the best price for your business. Interested? Then call us today on 01858 545805 to get started

When we chose Kingswood to sell our business we believed that their simple, easy to understand proposition to sell our business “a better way” was just what we wanted.This is exactly how it worked out with professional support from beginning to end. And the fees were exactly as quoted!

I would use Paul Holohan and his team at Kingswood again without question.


Bob Hanks