How much is my business worth?
The purpose of a valuation is to gauge a company's true worth. This is an essential step in selling a business, resolving shareholder disputes or applying for banking finance.
In this article, we investigate the different professions and organisations who can value a business. We also look at the pros and cons of each, and why the value of your business might differ, depending on your situation.
As advisers to mid-market companies, Nash Advisory has years of experience in assessing value. We utilise a number of proven methods and rely on our expertise to reach an accurate representation of value. If you're looking to sell you company, get in touch with us first.
What are some factors to consider before valuation?
As a business owner, there are a number of factors to consider before selling your company. Answers to these questions will determine what kind of professional is best to value your businesses.
- How complex is my organisational structure?
- Do I want a high level or detailed analysis?
- What is my budget for a valuation?
To get a fair and accurate summation of your business' worth, you must be prepared with all the necessary facts, figures and documentation on how your businesses operates. In preparation for valuation, you should be ready to provide the following information:
- Available and accurate information like forecasts and budgets.
- Access to financial statements like profit and loss, balance sheet and cash flow
- Details behind key contracts or agreements with suppliers
- Information surrounding intellectual property related to the business
- A thorough analysis of customers by sector, location, numbers or type
What are they types of valuers?
There are five main professions and institutions who can value a business, each with their own pros, cons and costs.
Banks are a reliable source for simple valuations, providing robust analysis and the option to secure financing in an ongoing relationship.
On the other hand, banks tend to be more risk-averse, resulting in lower valuations. They may also take longer to produce a valuation report than other sources.
Cost: Free or inexpensive
Business brokers are quick, simple and usually inexpensive. They are great at valuing businesses in retail and hospitality, or small businesses.
However, brokers typically do not focus on deep specifics of your business or industry, or take prevailing market conditions into account. They will often use a proxy like revenue or profit to value your business.
Cost: Free or inexpensive
Business advisers are usually specialists in a particular field or niche. They have expertise in running a business and guiding them towards success using a set technique. This gives them good insight into what adds and detracts value from a particular business.
While advisers can assess what adds or detracts value, analysing overall value involves taking into account financial, operational, legal, commercial, industry and market factors. Business advisers do not usually assess these, leading to miscalculated value.
Cost: $5,000 - $10,000
Accountants possess a strong understanding of financials, access to historical information and a sound understanding of different business types.
However, assessing other factors such as operational, legal, commercial, industry and market factors can be challenging, and therefore lead to inaccurate valuations.
Cost: $10,000 - $25,000
Corporate Adviser or Mergers & Acquisitions Adviser
As well as being experienced and capable, corporate advisers have access to broad databases and historical transactions. They are also able to analyse your business quickly and produce a report in a timely manner. An adviser can also assist in acquiring information required to produce a valuation.
This option can be the most expensive, and finding the right adviser for your business can be a challenge.
Cost: $5,000 - $50,000
What should I ask my valuer before we begin?
Once you have decided on who can value your business, your next steps should be to clarify their experience with a number of important questions:
- Have you valued businesses like mine before?
- What accreditations do you have to perform a valuation?
- Which valuation method do you intend to use for my business?
A good valuer should be able to answer each of these questions quickly and confidently, and provide you with a sample report detailing the type of analysis they will undertake to value your business.
If you’re looking to value your business in preparation for a sale, it’s essential to start planning today. There are many factors to consider, so it’s important to weigh the pros and cons of each option before you start. For more information and guidance on planning for the future of your business, contact Nash Advisory.