Business valuation
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Most business owners have a number in their head. It is usually wrong, and it is usually wrong in an expensive direction.
A business valuation tells you what your company is actually worth, on a basis that stands up to scrutiny: to a buyer, to HMRC, to a court, or to the person on the other side of the table who has every reason to argue with it.
We value businesses for sales, share transfers, investor raises, divorces, probate, and disputes. The number matters. Being able to defend it matters just as much.
When you need one
You are selling. A buyer will arrive with their own valuation, and it will be lower than yours. Going in without a properly evidenced number means negotiating against theirs.
Someone is joining or leaving. Bringing in a shareholder, buying one out, or transferring shares to family. Get the value wrong and you create a tax charge, an argument, or both.
HMRC needs a figure. Share transfers, EMI options, gifts and estates all require a valuation HMRC will accept. A number you invented will not do.
You are raising money. Investors price the deal off the valuation. So does the dilution you accept.
A relationship has broken down. Divorce, or a shareholder dispute. Now the number is contested, and it will be tested by someone paid to attack it.
Somebody has died. Probate requires the business to be valued, and Inheritance Tax is charged on that figure.
Why the number in your head is usually wrong
Owners tend to value the business on turnover, because turnover is the figure they know. Buyers value it on profit, and specifically on sustainable, transferable profit.
That last word does most of the damage. If the business depends on you, personally, for its client relationships and its work, then a buyer is not buying a business. They are buying a job, and one that comes with the risk that every client leaves when you do. That discount is often brutal, and owners are rarely prepared for it.
Consider two consultancies, both turning over £600,000 with £150,000 of profit. In the first, the founder does the work and holds the relationships. In the second, a team does the work under documented processes and the founder has stepped back. These are not worth the same, and the gap is not small.
The good news is that this is fixable, if you know about it early enough.
How we value a business
There is no single correct method. There is a correct method for the purpose, and using the wrong one is how valuations get demolished.
Earnings multiple. The most common for a profitable trading business. Sustainable profit, adjusted for the owner's own remuneration and any one-off items, multiplied by a factor appropriate to the sector, size and risk. The adjustments are where the judgement lives.
Asset-based. For property-holding or asset-heavy businesses, and for a company being wound up, where the assets are worth more than the trade.
Discounted cash flow. For businesses whose value lies in future earnings rather than past ones. Powerful, and easy to abuse, because you can make it say almost anything if the assumptions go unchallenged.
Minority discounts. A 10% shareholding is not worth 10% of the company, because it controls nothing. Whether a discount applies, and how big, is frequently the whole argument in a dispute.
We use the method the purpose demands, we document the reasoning, and we show our workings. A valuation you cannot explain is a valuation you cannot defend.
How we help
We produce a written, independent valuation report, with the basis, the assumptions and the evidence set out in full. It is written to be read by the person who will disagree with it.
Where the valuation is for HMRC, we prepare it to the standard HMRC expects, and we can negotiate the figure with them.
Where it is contested, in a dispute or a divorce, we can act as an expert and give evidence.
And where you are valuing the business because you intend to sell it in a few years, we will also tell you plainly what is holding the number down and what could be done about it. That conversation is often worth more than the valuation itself.
What it costs
Priced individually. The fee depends on the size and complexity of the business, the purpose of the valuation, and whether it needs to withstand challenge. A valuation for an internal share transfer is a different job from one that will be cross-examined in court.
We will tell you the fee before we start.
Business valuation: frequently asked questions
How much is my business worth?+
For a profitable trading business, most valuations start from a multiple of sustainable profit, adjusted for the owner's remuneration and one-off items. The multiple depends on your sector, your size, your growth and how dependent the business is on you personally. There is no shortcut, and any figure produced without looking at your accounts is a guess.
What is the difference between turnover and value?+
Almost everything. Buyers pay for profit, not revenue, and specifically for profit that will still be there once you have left. A high-turnover business with thin margins and a founder who does all the work can be worth remarkably little.
Will HMRC accept my valuation?+
Only if it is prepared on a basis HMRC recognises and properly evidenced. HMRC's Shares and Assets Valuation team routinely challenges figures that arrive without reasoning. We prepare valuations to that standard and, where needed, agree them with HMRC in advance.
How long does a valuation take?+
Typically two to four weeks from receiving your financial information, depending on complexity and how contested it is likely to be.
Can you value my business if you are not my accountant?+
Yes, and for a dispute or a court matter, independence is a positive. We work from your financial records and we do not need to take over your compliance work.
I want to sell in three years. Is it too early to get a valuation?+
No. It is close to the ideal time. A valuation now tells you what you would get today and, more usefully, what is holding that figure down. Three years is long enough to fix most of it.
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Find out what your business is actually worth.
And, just as importantly, what would make it worth more.