There are many reasons for valuing private business whether you are considering investing, selling, transferring an interest in a business, setting up a tax efficient employee ownership scheme or looking to resolve a dispute. Whatever your intention, fully understanding the value of the business in question is an important and useful exercise, allowing you to make the right decisions.
When considering the value of a business the first thought of any Valuer should be to consider the legal contracts which exist between the owners of a business be that, Company Articles of Association, Shareholders Agreement or any other formal agreements. These legal contracts can be complex, however a full understanding of any requirements or conditions set out in these documents is essential to arriving at an appropriate value.
In relation to the valuation of private businesses there are three principal methodologies; Dividend Yield valuation which is often used to value minority shareholdings. For interests in small unquoted businesses, where payment of dividends has been inconsistent in the past and cannot be assumed with any certainty in the future, a dividend-based valuation would not be appropriate. A Net Asset Valuation which is more applicable to investment companies than ongoing trading companies. However, net assets can be used as a useful cross check to an earnings based approach for trading businesses where the relevant owner is such that the owner could affect the winding up of the company. The most common approach for valuing a profitable trading business is an earnings basis which uses the future maintainable earnings of the business, to which an appropriate capitalisation factor (i.e. Price Earnings ratio (“P/E ratio”) or EBITDA multiple) is applied to determine the value.
At AAB we have a dedicated team of experts who can prepare valuations for companies, partnerships and sole traders. We understand that each business is unique and because of this they each require a bespoke valuation service, tailored to their requirements. To deliver this, we combine our specialist valuation skills with our commercial and market knowledge gained on the back of advising numerous clients on the sale of their businesses. The right blend of sector experience and professional judgement makes a difference to what can be a controversial and complex subject.
We are experienced in all aspects of valuations including, commercial advice on strategic reviews and investment appraisals, undertaking and reviewing valuations for tax purposes, valuation of intangible assets, expert’s witnesses appointed during a legal dispute or an advisor to one of the parties in an expert determination and regulatory and accounting advice on valuations required by Accounting Standards.
Whether you are looking to create, unlock or understand the value of your business – our team are here to help.
For more information contact Gordon Steele, Corporate Finance Partner & Head of Business Valuations (email@example.com) or your usual AAB Advisor.