There are many factors that can impact the value of a business including the situation leading to the valuation; the market the business operates in; contracts and commercial relationships; the client base and trading longevity; intangible and tangible assets, in addition to the management team in place.
Ultimately, the value of a business may hinge on the historic, current and future profit it is likely to make, balanced by the risks involved. However, valuing a business isn’t merely about offering a snapshot of its profit and loss, it can give a detailed overview of the company’s chances of sustainability over a prolonged period of time.
Valuation techniques to value a business
The true value of a business is always what someone is willing to pay for it - the skill is quantifying this figure whilst reflecting the individual business and its particular set of circumstances. Working out the value of a small business can be a considerable and complicated task. Business valuers typically use one or more valuation methods to help calculate market value.
The most common methods are as follows:
Maintainable Earnings Valuation
The historical – and expected future - profitability of a business is used to determine its current value. A maintainable earnings valuation is especially useful for business valuation when profits may be expected to remain stable or predictable. Maintainable earnings are typically calculated from the financial performance from the past three or four years.
The relative valuation method quantifies a value based on arm’s length open market transactions of a number of closely comparable businesses.
A company’s assets include tangible and intangible items. For certain industries and types of business, the book or market value of those assets can be used to determine the company’s worth. With trading ventures, the Net Asset Value may reflect the lowest value a company is likely to achieve.
Discount Cash Flow Valuation
The Discount Cash Flow (DCF) method can be appropriate if profits are not expected to remain stable in the future. The DCF method takes a business’ future net cash flows and discounts them to a present day value.
Industry rules of thumb
In some industry sectors, buying and selling businesses is common, which can lead to industry-wide rules of thumb that may be dependent on factors other than profit.
Valuing a business is as much an art form as it is a science. There are some easy steps that can assist to secure a clear or favourable business valuation – including:
R A Valuation Services specialises in providing sensibly and competitively priced formal company valuation and business valuation reports for all types and sizes of sole traders, partnerships, LLPs, private limited companies businesses and other organisations in the UK and Europe.
We are happy to explain the process and what you would need to provide, so why not phone the office on 01425 402 402.
An expert business valuation supported by a professionally prepared Valuation Report from an independent and authoritative source is an essential aid for:
Valuation Reports produced by R A Valuation Services Ltd are bespoke and geared to each client’s individual circumstances and requirements; they are definitive and realistic in the market place. As we are recognised as expert witnesses for supplying Valuation Reports to UK courts and HMRC queries/challenges, we are acknowledged to be the authoritative business valuer by:
R A Valuation Services' Valuation Reports are tailor-made for their purposes, definitive and realistic in the market place. Indeed, such is their authority that an R A Valuation Services' Valuation Report is normally insisted upon in support of negotiations.