How to value a business if you're looking to sell

When it comes to selling your business, the first thing most owners want to know is, how much is it worth?

Is there a standard method, formula or approach to valuing a business?

There is no single formula which is accepted and used in the process of valuing businesses. Obviously, a business seller will seek to drive the price up, whereas any possible business buyers will seek to get the valuation and price reduced.

Other factors also come into play in most sales of small businesses. Sale price may well be linked to whether, as seller, you are prepared to accept any deferred payment, earn outs, to stay on in the business. All these issues can fundamentally impact business worth, as can tax efficiency on business sale for both buyer and seller.

If you need advice or services in valuing a business, whether as potential seller, buyer or for other reasons, or strategic or negotiating advice in this area, please get in touch with George Skelton.

Valuation for sale, investment or other reason?

We have clients who ask for our advice and assistance on valuing their businesses for lots of reasons, not just with a view to sale. Applying for finance from a bank or other 3^rd party may require a valuation.

Another quite common scenario is where a business or company needs to be valued because there is a shareholder dispute and one or more of the shareholders or business owners will buy out the other shareholders. In this situation, the method of valuation may be very different to selling the entire company or business to an unconnected 3rd party. We can assist whatever the underlying position and commercial reality.

Valuations for businesses can also depend on the structure of the deal - key issues can include whether certain assets only can be sold and not debts (in which case a higher price may be possible) or whether it's a company share sale. timing is also a significant factor. If buyers’ sense that a seller is looking for a quick sale or the business has been marketed as available for sale for some time, a clever buyer will almost certainly use this to his or her advantage.

The key takeaway is that if you want to make sure your company sells with a healthy valuation, then you need to ensure that your company is healthy as well. It is best if when you begin to think about selling the company, that you are in the position to also happily hang on to it. If this is not the case, then you need to take some time to prepare your company for going on sale.

If you would like to talk to someone about your company's financial health and identify opportunities for business growth;