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Thinking smarter on valuing your business

You can positively influence the value of your business

Presentation, negotiation and a competitive buying arena can all make significant differences to valuation.

Here’s the info on valuation

The true value of any business, at the end of the day, is what a willing buyer will actually pay for it.

Several factors will affect the value of your business, including the timing of the sale, the condition of the business, the competition to buy the business and any unique or strategic interest the buyer may have in acquiring your company.

During the course of negotiations on the sale of a business, potential acquirers will use a number of different valuation techniques to establish the range of prices within which to negotiate.

However we will always work towards maximising valuations through our business sale process which:

Creates competition by courting a range of potential buyers.

 Opens up the playing field by considering buyers from outwith the      company’s market sector.

Includes the possibility of overseas buyers.

Emphasises the future potential of the business.

Keeps price options open by not disclosing this up front.

The most common methods of valuation of a business are:

Multiple of the normalised earnings

This method uses the technique of applying an appropriate multiple to the normalised earnings for your business, thus giving a capital value.

Normalised earnings are your business’s reported historic or projected profits adjusted for abnormal or non-recurring items.

The most commonly used multiple is the price to earnings ratio (p/e ratio). This ratio tends to fall within a given value range for different industry sectors and can also vary depending on types of income stream.

Discounted cash flow valuations

The other common valuation method takes your future cash flows and discounts them to give the present value for your business.

The appropriate cost of capital is calculated by taking an average of the costs of meeting the investment returns demanded by owners of capital employed in the business. Such capital would include all the different types of equity and debt in a business.

The appropriate costs of equity and debt are determined by reference to comparable quoted companies and debt instruments for which statistical data is available. The higher the perceived risk of investment, the higher the required rate of return, and hence the discount rate, that will be applied.

As with all valuations reliant on projections, the result is only as good as the assumptions made. However, this is a useful valuation tool particularly where the trading or profit stream is irregular or there is significant investment required before delivering profit growth.

Here’s the key

'The accepted methods of valuation should be seen as a guide to valuation which potential buyers are likely to use as a reference point or starting point to negotiations.

A professionally presented proposal to a willing buyer can increase perceived values and thus increase the amount you receive at the end of the day.

Our highly personalised valuation process and sales negotiation format is designed to present your business in the best possible light and maximise its value.

Wondering what to do next?

Simply make contact here.

To request a call back or if you would like more information or have a specific requirement, email us here and we will channel your enquiry to the most appropriate advisor.

The great thing is there’s absolutely no cost for initial consultations and assessments. We look forward to hearing from you.