How to value your business

How to value your business

For most business owners, deciding to sell your business is often the most important decision you will make. Dealmaking experts, the GS Verde Group, combine multiple disciplines to support business owners through every step of a sale, including pre-sale preparation stages. Here, we discuss the advantages of getting a business valuation and how to boost your business' value to maximise a sale.

After dedicating considerable time, money, energy and emotion into your business, ensuring the maximum return on that investment is a priority for any owner looking to exit.

However, certain factors that maximise how well a business sell hold true, no matter the wider economic circumstances when completing a sale, many of which involve preparing your business before it is marketed for sale.

Before any negotiations or discussions of deal structure can take place, there are steps you should take to answer the all-important question 'how much is my business worth?'

What are the benefits of a business valuation?

There are several different valuation methods used to determine the overall value of a business. Based on the size, stage and growth prospects of the business, the value is derived from the future cash flows of the business, profit generated by the business, or the value of fixed assets/ intangible assets a company holds.

Business valuation approaches also consider the value at which similar sized businesses in the sector, operating in the same geography were bought and sold, and includes a thorough review of the market and sector performance.

From a buyer's perspective, the more risks there appear to be, the lower the business' value. Therefore, getting a valuation unlocks many benefits. Valuing your business provides a baseline to gauge overall performance, allowing you to understand the current value of your business to not only maintain but also improve its value in the long term. A valuation also helps you to see how your business benchmarks against others in your sector, similarly sized businesses or those at the same stage of development.

By securing a business valuation through a professional team, you receive reliable figures that stand up to scrutiny in negotiations, comparisons to latest industry multiples and guidance from experienced valuations experts. You will also be able to provide your business' stakeholders the information needed to give assurance on your business' progress and development.

Using the latest data sources, our team can help determine an independent, reliable and realistic valuation for your business so you can determine the value of your business based on reliable data and tangible metrics.

GS Verde's online business valuation tool helps you get an indicative valuation in minutes, so you can understand what your business is worth and for a more thorough valuation, our experienced team are on hand to help.

When should you get a business valuation?

Obtaining an independent valuation at any stage through the life of a business can help inform management decisions when preparing for the future. Business valuations are a key step in corporate transactions and planning ahead is key to the success of a future transaction. Examples of transactions where an independent valuation is essential are:

• A third-party sale of the business
• A partial or full sale to a management team (MBO)
• Obtaining equity investment to grow the business
• Putting share schemes in place to incentivise employees
• Assessing the value of a company to be acquired

Getting a valuation now can help identify areas to enhance the future value of the business, to drive value ahead of a sale or acquisition.

There are several steps that you can take as a prospective seller to increase the value of your business pre-transaction. These generally involve focussing on your key areas of growth, sales performance and future financial projections that can inform and improve current strategies. The key is to demonstrate a future of stable, if not increasing, profitability.

Some methods of boosting a business' value focus on the systems of working, such as having an effective operations system in place that addresses arising problems quickly, having formal agreements in place with your employees, customers and suppliers and additionally reducing concentrations on these relationships to avoid over-reliance on one in particular.

Other methods have a more financial approach, involving improving cash flows and margins and demonstrating consistent revenue growth rather than erratic spikes in earnings. Doing this indicates that your business has steady growth that is set to continue.

For the most reliable assessment of value, at least three years of historical trading results, an understanding of the business model and growth prospects are required to gather an accurate understanding of the business.

Thinking of selling?

The GS Verde Group are experienced experts that can take care of every step in the sale of your business, from valuation, to organising viewings, negotiating offers, all the way through to completion.

Find out how much your business is worth with GS Verde's FREE valuation tool.