How much is my business worth?

Understanding what your business may be worth is an important part of planning a sale. A considered valuation gives you a starting point for discussions and helps you assess whether an offer fits your objectives.

It is an assessment based on information and assumptions, rather than a guarantee of the price a buyer will pay. The strength and sustainability of earnings are central to understanding what a buyer may be prepared to pay.

What influences a business valuation?

Financial performance matters, but it needs context. A buyer will also want to understand the company’s customers, management, market position and ability to generate cash.

For established manufacturing, engineering and trade businesses, questions may include how dependable demand is, whether important relationships rely on the owner and what investment the business will need in the years ahead.

Two businesses with similar turnover can have different earnings, risks and investment requirements. Understanding those differences helps explain why their valuations may differ.

Understanding the financial picture

A useful starting point is reliable financial information. Annual accounts, current management accounts and a clear explanation of unusual costs or income help establish how the business is performing.

EBITDA means earnings before interest, tax, depreciation and amortisation. Adjusted EBITDA may be used to consider underlying trading performance, but any proposed adjustments need a clear explanation and supporting evidence.

Earnings multiples are one valuation method. The appropriate approach depends on the business, its sector and the purpose of the valuation. Cash generation, assets and investment requirements also need consideration.

What does a valuation tell a seller?

A valuation can help you decide whether selling now could meet your objectives or whether further preparation would be worthwhile. It can also identify matters that need explaining before discussions with potential buyers.

It is useful to think about the assumptions behind a valuation, rather than treating a single number as a fixed outcome. Ask what information has been used, what the valuation includes and which factors could change the assessment.

Comparing an offer with your expectations

An offer should be considered as a whole. The headline value, payment timing, conditions and your expected involvement after completion all matter.

Understanding the distinction between the value of the business and the value of its shares can also help you compare proposals on a consistent basis.

Preparing for a conversation

You do not need to have every document ready before exploring your options. A clear overview of the business, recent performance and your own plans can provide a useful starting point.

Where you need a formal or independent valuation, an appropriately experienced adviser can help you understand the relevant methods and assumptions. An early conversation can then help establish whether there is a basis for taking matters further.

This article provides general information and is not valuation, tax or legal advice. Obtain advice appropriate to your circumstances.