Understanding Business Valuation

The first question a business owner asks when considering a sale of their company is always, “How much is my business worth?”

The truth is that to answer this question in a meaningful way, it needs both knowledge of the deals landscape in your sector, an understanding of the key factors within a business that buyers will be focused on and an awareness of how business valuation models are applied. Below we address some of the key models applied when valuing your business.

Firstly, before you apply a valuation model to your business, one should consider a ‘common-sense’ saleability assessment, that weighs up the pros and cons of attempting a sale with the business in its current form/steady state. This might include understanding the robustness of your business, its sector of operation, certainty of income streams, your management team, your customer base, and any supplier vulnerability.

One should also take time to consider what risks/returns a buyer might perceive in the company as is. This is where an expert advisor will be worth their weight in gold, as they will be able to guide you through an assessment process, which involves a deep understanding of buyer considerations, aligned to the business valuation drivers that come into play when selling a business.

Secondly, as a business owner one should undertake the process of determining the fair market value of your company. This can be an arduous process, however, when done with expert guidance, it will deliver a relatively firm idea of the future intrinsic value of your company, the value of similar companies in your market sector, and the value paid by buyers to acquire similar companies (whether those buyers are financial or trade acquirers).


Valuation models:


  1. Market-Based Valuation

A key method of valuing a business is allowing experienced M&A Researchers to scrutinise deal data within your market sector, compiling real valuations from transactions involving both listed/Public companies, Corporates, SMEs, and other Private Sector businesses.

By assessing the multiples applied in recent company acquisitions in your market sector, business owners can be informed by ‘real deals’ and valuation multiples, typically based on Price-to-Earnings or Revenue/Enterprise Value.

Our Deal Team gathers and analyses a wide range of data regarding completed deals and is informed by recent transactions across a range of sectors. In this way we seek to provide clients with the range of multiples applicable to their business, along with critical insights to help develop and support their chances of success when they go to market.


  1. Discounted Cash Flow (DCF) – Income-based valuation

This method allows an owner to estimate a company’s value based on its projected future cash flows, growth prospects and historical performance.

A DCF analysis requires you to make estimates about future cash flows and the ending value of the investment, equipment, or other assets. The valuation may be subjected to discount rates, influenced by external factors, such as the acquirer’s risk profile and the conditions of the capital markets.

The investor must also determine an appropriate discount rate for the DCF model, which will vary depending on the project or investment under consideration. Factors such as the company or investor’s risk profile and the conditions of the capital markets can affect the discount rate chosen.


  1. Asset-Based Valuation

This model simply looks at the assets and liabilities of a company, calculating the net worth of the business by adding up its assets and subtracting its liabilities. Often criticised for its lack of appreciation for the future earning potential of the business, this approach can provide a baseline value.

Care should be taken when considering any one of these models in isolation. All businesses are different, and the underlying benefits or risks associated with the construct of your particular business must be factored alongside any market intelligence in order to truly understand the likely value of a business.


Indicative Offers

Ultimately the true proof of a realistic valuation for your business can only be derived by undertaking an orderly sale process. Even better if that process is informed by experts with real deal experience, who can truly understand the value proposition represented by the uniqueness of your business, assess the market, conduct financial modelling, and engage proactively with properly researched acquirers, investors, and other interested parties on your behalf.

You can achieve negotiated indicative offers as a result of a sale process, which will leave you in no doubt as to what your business is worth. In lieu of taking your company to market, engaging an advisor to work on a Business Valuation report,  at the very least, will give you some confidence when assessing an offer your company.


If you would like a no-obligation consultation on the sale of your business or would like to discuss our Business Valuation Service, please click the link: https://bit.ly/3WH7BaI

As a long-established premium provider of business sale advisory services to UK businesses, EvolutionCBS offers business owners a complimentary and confidential discussion on how their specific objectives could be met and provides them with pragmatic, practical advice on how to begin preparing both themselves and their businesses for future sale or investment.

EvolutionCBS works with owners of UK businesses in any sector, finding buyers from around the world through highly targeted research and supporting clients with dedicated Director-led teams, at every stage of their journey to a successful sale or investment.

If you are an owner or shareholder of a business and would like a no-obligation consultation on the sale of all or part of your business, please email: info@evolutioncbs.co.uk  or contact us on Tel: 0118 959 8224.

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