For this edition of the Specialist Edge, we welcome Edward O’Rourke from Ashton KCJ to talk about correctly valuing your business:
“Over the years I have witnessed many business owners fail to sell their businesses because they have latched on to the valuation given to them by their advisers as though it was a statement of fact and not opinion.
Valuing a business is an art and not a science but there are some things a business owner can do to ensure their valuation is fit for its purpose. These are:
-Determine the purpose for which you require the valuation – There are many reasons why the value of a business may need to be known; a sale; a purchase; a merger; an investment; borrowings/overdraft; understanding tax consequences of certain decisions; the estate planning of the owners. The valuation in each of these instances will have subtle differences;
-Choose the right professional advisers – The choice of professional may vary depending upon the purpose for which the valuation is required;
-Understand the valuation method used and the reason that method has been chosen – There are numerous ways in which to value businesses and different valuation methods are going to be appropriate for different business types. Knowing the basis used in your business will help you counter arguments that a different valuation method should have been used;
-Consider how you may enhance the value of some assets – Certain assets should be relatively easy to value such as stock, land, machinery and equipment. However, other assets may be more difficult to value such as goodwill and intellectual property. However, the value of intellectual property can be greatly enhanced if it is registered.
-Ensure your professional advisers communicate with each other and understand what each is trying to achieve – there is no point having an adviser valuing your business if the lawyer then instructed to assist with its sale does not understand the basis of the valuation.
In reality, when using a valuation you must consider the purpose for which it is being used for and not treat the information provided as gospel. At the end of the day, the only valuation that matters when selling a business is the price the buyer is prepared to pay and the owners are willing to accept.”