You need specialists who are thoroughly experienced with the theory and practice of these transactions.
Get the right valuation for your needs – there are many methods from cheap on-line quick fits to detailed professional valuations – ensure you understand what you need and what you will get.
To answer this, three questions need addressing:
Differing assumptions, methods and data lead to widely different valuations, so it’s essential to match the optimum approach with your particular situation.
Most valuers know how to mechanically use the different valuations methods to come up with a valuation.
Some will even quote a six figure valuation accurate – supposedly – to the nearest pound. This denies the inherent subjectivity in ALL valuations.
Confidence from completing many hundreds of valuations and involvement in negotiations and disputes means we know how best to handle this subjectivity and secure the best valuation for your needs.
Which method is most appropriate for my valuation?
Which internal and external data do I need?
Which valuations should I use?
There are various established business valuation methods available, and the main ones focus on:
Future cashflows (discounted back to a single value)
Multiples of sales or profits (and comparable with those seen in external markets)
Rates of return (on the estimated value or proposed investment)
Value of dividends
Value of the balance sheet
Selecting the appropriate method will be influenced by the industry sector, the life cycle of the company, the purpose of the valuation and, as ever, the available budget.
Using the most appropriate data within the selected valuation methodology will naturally and heavily influence valuation results.
It will involve carefully selecting a combination of past, current and estimated future performance data and making adjustments where necessary to eliminate any distortions caused by factors such as owners receiving dividends rather than salaries, or conversely, businesses adopting costs which might not be necessary under a strict arms-length basis or a new owner.
The final data input is to obtain observable and comparable market data which can demonstrate how earnings in particular sectors are valued or how these should be discounted for smaller, private company transactions.
Although a single valuation amount may well eventually be required for contractual purposes, it rarely makes sense when you are first trying to understand how to value a business in a very uncertain world.
Selecting a series of different valuations under differing assumptions concerning future performance allows for a far richer picture of the business to be established, which is crucial to managing negotiations and achieving an optimal valuation.
Explore with us how to focus on optimising your target valuation prior to negotiations.
SME discount versus UK stock market (valuation/profit) 2022
Business Valuations completed by Alpha Financials staff up to 2022
Commonly accepted valuation techniques are limited in number and not difficult to describe. The key issue is recognising the inherent difficulty and subjectivity of choosing which inputs to feed into these models which in turn massively affects the resultant valuation.
Valuations require a special skill set rarely used by accountants.
Accountants tend to offer very simplistic, earnings-based valuations that are easy to compute but often undervalue the business. Even as a potential buyer, this will generally not be helpful as it can often render your bid uncompetitive.
Sadly, we often see poor bookkeeping which can result in a complete absence of useful information to help how the business is performing or to help in the decision making process. It will also drive up the cost of producing the annual accounts.
A specific problem, a desire to reduce accounting costs or you just want some general financial advice from qualified experts? Then call us NOW
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We are UK based financial consultants, offering services in Accounting, Valuations, M&A, Project Financing and Investment Appraisals.
We engage across all industries and have a special interest in the environmental world.
If you any questions please get in touch using the contact details below, or using the form and we’ll get in touch with you as soon as possible.
