BUSINESS VALUATION information and QUESTIONS ANSWERED.
- How do you value a business?
- Why pay for valuation when you can get one free online or from a broker?
- What is goodwill?
- What is the difference between personal goodwill and commercial goodwill?
- What are EBITDA and PBT?
- What is an add back?
- Can you value my business?
- Does it matter if I'm a Sole Trader, Partnership or Limited Company?
- Valuing a minority shareholding.
- Who does my valuation report?
- Where does the information you use come from?
- Why are many traditional valuations flawed?
- How can I profit from having a business valued?
- Have you valued businesses in my industry before?
- Do you value leasehold and freehold property?
- Valuing Intellectual Property Rights (IPR).
- What information will I need to provide?
- Is it confidential?
- Do you need to visit my premises?
- How accurate is my valuation?
- How will I receive my valuation report?
- What is in my valuation report?
- How much is a business valuation report?
- How soon can I get my valuation report?
- Do you offer an update service?
- How do I get started?
1. How do you value a business?
Valuing a private business is not an exact science. To do it accurately and consistently requires experience, industry knowledge and the ability to analyse and closely examine all the factors involved.
Value can be determined by many factors including growth potential, cash flow, potential economies of scale, sector trends and activity, sustainable profit, asset value, financial history, location, competition, customer base, ongoing management, desirability and the economy.
There are some common valuation methods. It is possible to use one or a combination of the following:
- Multiple of earnings - mainly used for businesses with a record of sustainable profits
- Discounted cashflow - mainly used for large cash-producing businesses.
- Asset value - used for businesses with a large tangible asset base such as property or plant.
- Entry cost method - comparing the entry cost alongside the value of the business.
- Industry precedent - some industries have their own unique valuation methods based on sector criteria.
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Read further detailed information on valuation methodologies here
2. Why pay for valuation when you can get one free online or from a broker?
There are lots of free online business valuation calculators and plenty of brokers may offer you an opinion for free.
Firstly, an algorithm on a website or a short chat with a salesman are only as good as the input they receive. Answering a few questions and inputting some basic figures won’t provide you with any accuracy or insight as to what gives your business value and why. There are numerous factors to take into consideration which can have knock-on effects for other parts of the valuation. Every business has its unique characteristics which can influence the result. Experience and knowing where to look and how to interpret key factors are the key to valuation. Online calculators just aren’t there yet. Confidentiality flies out of the window too.
Furthermore, free online calculator websites are usually run by brokers or companies with a vested interest in signing you up on their books. The promise of a large valuation or payday is usually followed by a fat fee for their services.
You tend to get what you pay for. Unfortunately, if it sounds too good to be true, it probably is❯ Back to top
3. What is goodwill?
For valuation and mergers and acquisitions work (M&A), goodwill is the amount paid, or valued, above the net asset value of a business. If a business is sold for £100,000 and has net assets of £50,000, then the goodwill would be £50,000.
Goodwill is an intangible asset (not physical like buildings or stocks) which relates, but is not limited, to a company’s reputation, brand name, employees, product or service offering and the company’s ability to generate profits.
Working out the goodwill of a business can be a tricky proposition which is more art than science. Experience, precedent and knowing what to look for, and interpret, are the keys to getting it right, but it is usually based on opinion only.❯ Back to top
4. What is the difference between personal goodwill and commercial goodwill?
Personal goodwill relates to the reputation and skills of an individual and is considered as non-transferable.
Commercial goodwill is the reputation and skills of the business and is transferable.
A simple question to ask is would the business continue without the individual involved? It is important because any goodwill value will diminish the more reliant it is on its owner.❯ Back to top
5. What are EBITDA and PBT?
EBITDA is an acronym for Earnings Before Interest Tax and Depreciation and Amortisation. It is a standard measure of company performance.
PBT or Profit Before Tax is what it says, the profits of a company before tax.
Both are widely used in valuation methodology and as standards to compare profitability among companies and industries.❯ Back to top
6. What is an add back?
Add backs can be used when working out a business valuation. They are an expense or cost within a business which is added back to the profit to improve the profitability of a business.
An add back is usually considered if they are one-off, non-recurring, or not relevant to a new owner. Examples of an add back would be a director’s pension contribution if the director wasn’t remaining with the business. Or perhaps, the relocation costs of moving premises.❯ Back to top
7. can you value my business?
We specialise in industrial, service, manufacturing, wholesale and distribution businesses. We don't get involved in the licensed trade, retail or fast food and general catering businesses.
Contact us if you want to check or have a specific requirement.❯ Back to top
8. Does it matter if I'm a sole trader, partnership and Limited Company?
No. Some of the valuation methodologies can be different depending on the legal status. However, we conduct valuations for all of them and non-listed PLCs (Public Limited Companies).❯ Back to top
9. valuing a minority shareholding
Minority or non-controlling shareholdings in limited companies can be valued. It is important to check the Articles of Association for the company to see if any specific shareholders rights are in place. If there isn’t a prescribed valuation methodology defined it is possible to value the shareholding still, but a minority stake is usually valued with a discount applied.❯ Back to top
10. Who does my valuation report?
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All valuations are done by our managing director Howard Weston, a qualified financial adviser and corporate financier with over 20 years experience in valuation, and buying and selling businesses. Learn more about us here
. All valuation data is collected, analysed, collated, calculated and put together by hand and not randomly spat out by a computer or algorithm.
11. where does the information you use come from?
We have a selection of carefully chosen partners who we use for collecting data. And, we regularly maintain and update arguably the country’s most accurate SME deal database. This gives up-to-date deal and industry information which ensures we follow market trends, creating greater accuracy and validity in your report. Your report is designed to withstand the most vigorous professional adviser scrutiny.❯ Back to top
12. Why are many traditional valuations flawed?
Typically, traditional valuations only take into consideration the purely financial aspects of your business such as turnover, profit and balance sheet.
While these are important, you cannot simply ignore other factors such as industry standard valuation models, previous sector deal precedent, availability of comparative sector opportunities and many more. Each of these can have a dramatic effect on the value of a business.
For example, you and your neighbour's houses are for sale at the same time. You have a double garage, swimming pool and loft conversion while they don’t. It is likely your house will be worth more. Also, if three or four houses in the same street are for sale at the same time, this too will affect the value of your house. It can be the same with a business.
The Lucas & Weston BVR is the only valuation report which analyses your sector marketplace and comparative investments. This ensures your business’s value is accurate, reliable and informative.
Understanding how your business is valued can help you create a strategic plan enabling you to create greater value.❯ Back to top
13. how can I profit from having a business valued?
This will depend on the reason for valuation. Maybe you want to settle a dispute. Perhaps you’re just curious or looking for peace of mind.
Understanding how your business is valued can help you concentrate on the areas where you can add extra value. Often, simple easily overlooked things can be identified, amended or improved to make a major difference.❯ Back to top
14. have you valued businesses in my industry before?
We have over 40 years of proven track record in valuing and selling businesses. There are few industry sectors left where we haven’t valued in. This experience means that your valuation will be accurate and credible.
We regularly undertake work for many accountants’ and solicitors’ clients who often need to have an independent opinion to assist with Inland Revenue enquiries.❯ Back to top
15. DO YOU VALUE LEASEHOLD AND FREEHOLD PROPERTY?
These are not normally included as they would usually be assessed by a local surveyor or commercial estate agent.
16. valuing Intellectual Property Rights (IPR).
This is a highly specialised area of valuation and not included as part of our valuation report. There are many specialist firms available for your particular needs. A Google search will help you identify someone who can help you.❯ Back to top
17. What information will I need to provide?
You will need to send us the last three years certified or audited accounts and any management accounts or forecasts. You will also fill in a straightforward questionnaire which will cover most of your business operations. Your answers will guide us in doing the best job possible for you. We will also contact you, confidentially, to discuss the business and confirm any outstanding details❯ Back to top
18. is it confidential?
Yes. Your report is sent in a plain envelope marked Private & Confidential to the address of your choice. We will only make contact with you as per your instructions.❯ Back to top
19. do you visit my premises?
Site visits are not normally required. So we don’t need to take up any valuable 'out of office time' or raise eyebrows amongst your staff.❯ Back to top
20. how accurate is my valuation?
Because of the unique and thorough bespoke approach, we have proven accuracy to within 15% either way. This has been proven countless times in the marketplace through successful sales, management buyouts/ins etc.
While not all our clients agree with what we have to say, none can argue with the methodology, precision and bespoke approach.❯ Back to top
21. how will I receive my valuation report?
You will receive your report in hard copy and as an electronic PDF document too. Further bound copies are available on request.❯ Back to top
22. What is in my valuation report?
Your valuation report will have a clear outline of what we think your business is worth and why. It will clearly state the valuation methodology we have used and why it is appropriate for your business.
It will include competitor analysis, so you’ll be able to see how you measure up to your peers. A ratio analysis to show you how the business is performing and can be improved. A comparative benchmark will show you similar opportunities and peer businesses sold which will show you market expectations.
In short, you’ll get an accurate, easy to understand report, explaining precisely what your business is worth. It is an easy to follow process, confidential and represents excellent value for money.❯ Back to top
23. How much is a business valuation report?
A standard valuation report for a single business usually costs £1,500.00 + VAT. But, for a limited time only we can offer you a report from just £1,200 + VAT and save £300 too.
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That’s a great offer not to be missed. Some of our competitors charge anywhere from £2,500 to over £12,000 for a report which doesn’t tell you half as much as ours. Compare for yourself
24. how soon can I get my valuation report?
Typically we allow 2-3 days from receipt of instruction and necessary information requested. Usually sooner (subject to the supply of client information).
We also offer a fast track service if you’re in a hurry or have a tight deadline to meet. For a modest premium of just £445 + VAT. A fast-track valuation is typically completed within 24-48 hours (subject to the supply of client information).❯ Back to top
25. do you offer an update service?
Individual circumstances can change quite rapidly for many businesses. In recognition of this many previous clients take advantage of our previous valuation update service. This is valid and exercisable anytime within a year of valuation and is excellent value at just £549 +VAT.❯ Back to top
26. How do i get started?
Call 01225 460777 now.START MY VALUATION