If asked, would you know the answer to this question? Perhaps you’re vaguely curious. Perhaps you’d be surprised by the business valuation assigned by a professional and wonder what you could do to change it, depending on future objectives.
We’re frequently asked to prepare business valuations for a wide range of businesses and reasons – selling up isn’t the only requirement to have a professional place a value on the business. We’ll take a brief look at the main reasons for getting a business valuation, how it works and what else you may wish to consider.
What info is used in providing a valuation?
To give an accurate valuation, we get to know the business, what drives growth, generates profits and the risk factors involved. Typically, we’ll look at recent and expected future results, together with any historical data. External market factors also help determine a more accurate valuation.
Reasons for getting a valuation may include:
What’s in the latest business plan? Given the current economic climate, plans are likely to have changed compared to previous years and may include raising finance to fund expansion, capital expenditure, or even provide for contingencies such as litigation or restructuring.
Preparation for sale
As an owner-manager or in charge of the financial affairs of the business, a business valuation is vital if the plan is to sell the business at some stage in the near future. Any purchase price will be based on this amount and by getting an early valuation, this gives more time to make any necessary changes such as improving the value or restructuring affairs. Of course, if the valuation is higher than expected, you may decide to sell earlier as this could optimise the amount received.
Shareholder disputes, Management Buy Outs and share buy backs
Shareholder may wish to retire or disputes can escalate to the point the shareholder wishes to sell their shares back to the company. This hinges on an independent business valuation, providing both sides with assurance that the amounts involved are fair. Management Buy Outs also rely on independent valuations which help with a more seamless transition when the business changes hands.
Passing on the family business to future generations needs to be planned for and documented carefully, involving independent valuations and tax considerations. By taking these steps now, disputes and misunderstandings are avoided, with the business having more certainty over its future.
Forensic litigation & divorce matters
Where one or both parties to a divorce own business assets, their valuations form part of the overall financial settlement and therefore need to be calculated accurately to ensure a fair outcome is achieved for both sides.
Anna Madden, Curo partner and head of audit can answer your queries around valuations and how they can benefit your business. Anna is also a member of the Expert Witness Institute. Please contact [email protected] or call 01527 558539 to find out more about how Curo can help your business.