Corporate Finance - Share and Business Valuations

Adding commercial value to your transaction

Share and Business Valuations

Business valuations are often required as part of a corporate finance transaction to help you to determine if you are selling or buying a business for a reasonable price. There are also other reasons why you may need to calculate the value of your business including for tax purposes. Here we consider the range of methods available as well as some of the factors to consider during the process.

It is important to remember that valuing a business is something of an art, albeit an art backed by science and our experienced corporate finance specialists will undertake the process on your behalf.

Why value your business?

One of the most common reasons for valuing a business is for sale purposes. Initially a valuation may be performed simply for information purposes, perhaps when planning an exit route from the business. When the time for sale arrives, owners need a starting point for negotiations with a prospective buyer and a valuation will be needed.

Valuations are also commonly required for specific share valuation reasons.

For example, share valuations for tax purposes may be required:

  • on gifts or sales of shares
  • on the death of a shareholder
  • on events in respect of trusts which give rise to a tax charge
  • for capital gains tax purposes
  • when certain transactions in companies take place, for example, purchase of own shares by the company.

Share valuations may also be required:

  • under provisions in a company’s Articles of Association
  • under shareholders’ or other agreements
  • in disputes between shareholders
  • for financial settlements in divorce
  • in insolvency and/or bankruptcy matters.

When a business needs to raise equity capital a valuation will help establish a price for a new share issue.

Benefits you may not have considered:

  • Valuing a business can also help motivate staff.
  • Regular valuations provide measurement criteria for management in order to help them evaluate how the business is performing. This may also extend to share valuations for entry into an employee share option scheme, for example; again used to motivate staff.

Valuation methods

While there is a ready made market and market price for the owners of listed public limited company shares, those needing a valuation for a private company need to be more creative. Various valuation methods have developed over the years. These can be used as a starting point and basis for negotiation when it comes to selling a business.

Valuation methods include:

  • Earnings multiples
  • Discounted cashflow
  • Entry cost
  • Asset based
  • Industry rules of thumb

What else should be considered during the valuation process?

With any of the valuation methods discussed above, it is important to remember that valuing a business is not a precise science. In the end, any price established by the methods described above will be a matter for negotiation and more than one of the methods above will be used in the process. Ultimately, when the time for sale comes, a business is worth what someone is prepared to pay for it at that point in time.

There are a number of other factors to be considered during the valuation process. These may help to greatly enhance, or unfortunately reduce, the value of a business depending upon their significance.

Considerations include:

  • Growth potential
  • External factors (such as the economic climate)
  • Intangible assets
  • Individual business circumstances

Contact us for a free initial meeting

To find out more about how one of the leading firms of accountants in Sheffield, Doncaster and Northampton can help you, please contact one of our specialists. We believe in long-term client relationships and understand the importance of meeting to establish that you like us and we like you. This is why we offer all new clients a free initial meeting which will enable you to have a discussion about you and your business issues.

To book your free initial meeting, please click here.

We look forward to hearing from you!

Pete Wilmer

Pete Wilmer

Corporate Finance Partner

0114 266 7141

[email protected]

Mike Turney

Mike Turney

Director of Corporate Finance

01604 645 600

[email protected]

Jack Ware

Jack Ware

Corporate Finance

0114 266 7141

[email protected]

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