What is a Business Valuation and When May You Need One?

If you own a business, then you may benefit from getting a business valuation if you have yet to do so. Business valuations are useful for a number of reasons, whether you’re looking to merge or sell your business, or simply to understand your own financial stability.

Keep reading below to learn how a business valuation is carried out and the reasons why they may be useful for you.

What is a Business Valuation?

A business valuation is a type of financial evaluation that determines the economic value of your business. This is usually carried out by an accountant, who will provide you with a detailed financial report breaking down your historical earnings, expenses, profit numbers, liabilities and qualitative information on other aspects of the business (such as key employees).

Most business valuations will include the following:



-      The overall value of your assets

-      Your price to earnings ratio (P/E - the ratio of your company’s share price to the overall earnings per share)

-      How much revenue you generate in annual sales

-      A discounted cash-flow analysis

Why Get a Business Valuation?

There are a number of reasons why a business valuation may be useful to you throughout your period of ownership. Here are three examples of different instances when someone may want to obtain a business valuation.

Investment

If you’ve recently started up your business, then investors may be a good idea to boost your business growth. In order to secure an investor, they will want to know that it will be worth their money and that they will end up gaining their original investment back, along with further profit or and/or other benefits that they may negotiate.

Having a business valuation can help you to more successfully pitch your business to potential investors, as you will be able to provide them with detailed information regarding your current and predicted economic value and forecasted profits.

Taxation Advice

If you are gifted/inherit a business from a family member or friend, then you will want to have as low a valuation as possible in order to reduce the tax you’ll have to pay on it - especially whilst you’re still finding your feet with it if planning to continue the business on.

A solicitor will be able to offer business taxation advice to you along with providing a valuation, pointing out problems and weaknesses within the business that may reduce the overall valuation.

Preparing to Sell

If you are preparing to sell your business, then a valuation allows you to understand the current economic worth of your business as well as predict profit earnings for future years. Doing this allows you to negotiate a fair price with potential buyers whilst allowing them to see how they will benefit from buying your business.

The same thing applies if you are looking to enter a merger with another business or enter a partnership and split the shares of the business with another individual.

At Marshall Accountancy, our chartered accountants are able to produce comprehensive business valuations, with our technical and detailed reports written in an easy-to-digest way rather than filled with confusing jargon. Get in touch today to arrange your consultation.