Why You Need a Company Valuer in Corporate Finance
There are several reasons why a business owner would need a valuation for their company. Regardless of your needs, you should always be looking for a fair market value. An inaccurate valuation can ultimately lead to an underpriced sale, a loss of investment, or alienation of potential buyers.
Selling a business
The most obvious reason to look for a business valuation is when you plan to sell your business. All potential buyers will request a valuation in the early stages of negotiations, so having an accurate number to hand is essential.
Applying for finance
Banks will typically request a business valuation when a loan application is made. A good valuation will reassure the bank that their money is safe and continue with the loan.
Lumbview can provide a quick valuation of your business that won’t delay the processing of your loan application.
Securing private investment
Just like banks, private equity investors also want to know exactly what they’re getting into before parting with any cash. Providing an accurate valuation is one of the best ways to secure investment and put it towards growing your business.
For other third parties
Finally, you may be asked to provide a valuation when dealing with other third party companies. Again, our team can put together a comprehensive valuation that will satisfy the needs of any third party.
Our 8 Factors for Company Valuations
A valuation will take both tangible and intangible assets into account. Tangible assets are physical objects that can be counted and given a value.
Intangible assets include things such as Goodwill, Reputation, Brand Image and Market Share.
2. Position amongst competitors
Another of the most important factors for a market price valuation is how well the business is performing amongst its competitors. The closer the business is to the front of the pack, the greater its valuation is likely to be.
In some niches, competition may be limited or non-existent. In this case, the business’s position amongst its competitors won’t have as big an impact on its value. Of course, this can change if the lack of competition is actually due to the superiority of the business.
3. Reasons for sale
If a valuation is being done in preparation for a sale, then the reasons for selling could affect the value of a business. For example, if an owner is looking to sell quickly to raise funds, this is likely to lower the valuation.
Every owner has their own reasons for selling, but it’s always worth thinking about how a prospective buyer would interpret these reasons. For a high valuation, you want to be in a position where your business is stable, and there are no indications that success will slow down.
4. Buyer interest
Like everything else in the corporate finance world, supply and demand is a key principle that underpins the value of a business. The more buyers interested in buying a private company, the higher its value will be.
As you’d expect, selling a business is drastically easier when there’s interest from multiple parties. Business owners should take advantage of this interest and deserve to receive a valuation that reflects demand.
5. Profit change rate
Another important indicator that buyers, banks and investors are interested in is how a business’s profits change over time. Regular growth in profits will attract interest and improve a valuation, whereas inconsistent business income will have the opposite effect.
6. Customer base
How large is the business’s customer base? Does the business rely on a small set of regular buyers? How would the business’s revenue change if it lost its main customers? The answers to all of these questions will have a significant impact on the market value of a business.
7. Staff roles & owner dependency
Many small businesses have small teams, with each staff member playing an important role in its smooth operation.
However, if a business relies on particular staff members to the point where the business would struggle without them, the valuation will be negatively affected.
8. Quality of contracts
The quality of the contracts produced for staff members is a good indication of the company’s management standard. Any business valuation team would take a close look at the contracts to understand how the business is being operated.
Frequently asked questions
Business Valuation FAQs
How can I find the present value of my business?
The best way to get a reliable valuation of your business is to hire a professional accounting team. Accountancy firms use a range of valuation methods and financial analysis techniques to work out the most accurate value of a business.
How do investors value private businesses?
Investors value businesses in a very similar way to accountants, using a range of factors to come to a conclusion.
This is why it’s so important to pursue an accurate and fair valuation for your business – you don’t want an investor to be put off when you value your business too highly.
What methods are used in valuation?
Accountants examine a range of factors to determine a valuation. These include assets, profit growth, customer base, owner dependency and more. To find out more about how the valuation process works, check out our “8 Factors For Valuations” section above.