When should I have my Business Valued?
By Ensors Chartered Accountants
There is no doubt that understanding the value of your business is key to effective decision-making.
However, there are situations when a business owner must have a valuation and there are situations when it is just advisable.
The must have situations tend to centre around:
• Shareholder and commercial disputes
• Divorce
• Setting up an employee share scheme
• Valuations required for tax reporting
• Insurance claims
• A buy/sell agreement
Whereas, the areas where a valuation is advisable include:
• Succession planning
• Planning for an exit or acquisition
• Assessing how to increase value
• Quantifying business and life insurance needs
Business valuation is a mix of science and art. The business valuer will consider a range of matters including cashflow expectations, past financial performance, asset values and reported transactions, as well as risk factors, key customers and suppliers, debt and cash in the business. It will also review the wider economy, the business sector and the strength of the management team.
In essence, a business is worth what someone will theoretically pay for it in the open market. No two business are worth the same and, as such, a business valuation should be considered as a guide rather than a hard and fast figure.
Business values can, in my experience, change very quickly due to factors out of the control of the business owner, such as ill-health, financial failure of a key customer or supplier, legislative changes or
funders withdrawing.
Once a business has been valued, and the factors influencing the valuation are understood, the business owner can focus on strategies which will enhance
the value.
The areas where value can be enhanced include:
• The rate of growth
• Increasing cashflows and reducing monies locked up in debtors and stock
• Decreasing business risks including over reliance on key customers or suppliers, building a strong management team and improving management information systems
An independent valuation by a professional valuer is important, as business owners inevitably have preconceived ideas of what their business is worth. The practiced business valuer will draw from their experience of transactions and trends in the sector.
In conclusion, business valuation is crucial to successful business planning and measuring progress and, ideally, the valuation should be updated every three years with a review of the business plan.
Contact Ensors Chartered Accountants on T: 01473 220034 or visit ensors.co.uk
