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How do you value a privately owned business? A guide provided by R A Valuation Services Ltd, Specialist UK Business Valuers.

There are four main approaches to valuing a business in the UK - earnings multiple, asset-based, cash flow based and an analysis of comparable companies.

In most cases for small trading businesses, an earnings multiple provides the most accurate market comparison. To do this, first, a fair level of maintainable earnings needs to be established. This level of sustainable earnings is then multiplied by a business category related multiple (service, retail, manufacturing). All figures should then be verified with a comparative value - based on the open market transaction values of closely comparable businesses.

Using the asset-based method, you value the assets of your business (buildings, machines, products, raw materials and any intangibles like brand if possible), sum it up and here comes the value of your business. However, in the majority of situations this is not a valuation method appropriate for small companies as they are unlikely to have had time to build up a notable asset base.

Using cash flow analysis, you forecast future expected revenues and costs, arrive at an expected net profit, run the forecast for a period of time (usually between three and five years), then calculate the terminal value (future cash flows extended into perpetuity), and apply a discount rate which reflects the time value of money and riskiness of your business to bring the cash flow to its present value. It is prospectively the most accurate way of valuing any company, but also the most complicated and prone to mistakes.

For a small business, a rule of thumb model can be the most appropriate approach. This involves reassessing recent financial accounts to calculate the surplus for the owners, then multiplying the surplus by a business category related multiple (service, retail, manufacturing and so on). Small service related businesses are generally valued at a lower multiples and small manufacturing businesses generally receive higher multiples.

R A Valuation Services Limited specialises in providing share and goodwill valuations for small businesses and private limited companies in the UK and Europe.

An accurate and independent assessment of the value of a business is an essential tool in any form of business change or development. Our Valuation reports are an important, if not vital, aid to business owners, prospective purchasers and their financial and legal advisers.

Business Valuations
Can R A Valuation Services value any type of Business?
The valuation process can be applied to all types of small business provided that the business has a suitable trading history .... more >>

How does R A Valuation Services value a Business?
The valuation process is concerned, primarily, with an assessment of a justifiable value for goodwill .... more >>

What is R A Valuation Services Ltd?
Established in 1991, R A specialises solely in business valuation .... more >>

Reasons for a valuation
A Business Valuation supported by a professionally prepared valuation report from an independent and authoritative source is an essential aid to:
  • Management or internal buyout
  • Business sale / Business purchase
  • Partnership and shareholder change
  • Litigation e.g. legal separation
  • Incorporation
  • Tax agreement
  • Borrowing and funding
  • Business development
  • Benchmark / Performance indicators for business
  • Report is definitive & realistic in the market place
R A Valuation Services Ltd
Recognised Authority
Valuation reports produced by R A Valuation Services Limited are acknowledged to be the authoritative form of business valuation for many small and micro business sectors and are accepted by:
  • Bank managers
  • Other lenders & providers of finance
  • Lawyers
  • Accountants
  • Tax specialists
And an R A Valuation Services' valuation report is tailor-made for their purposes. Indeed, such is their authority that an R A Valuation Services' valuation report is normally insisted upon in support of negotiations.

The report itself is detailed and informative, professionally presented and smartly bound.

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