Determining the Value of Your Business

This month we are discussing how the value of a business is determined. We previously touched on the topic back in 2016. This is our more up-to-date version in the wake of Covid-19.

Determining the value of a business is a complex process that involves taking many factors into account. It’s not a case of plucking a figure out of thin air or being guided by the rosy expectations of the owner. Finding a realistic market price that accurately represents your business requires a great deal of research and work. Determining value usually requires an initial consultation. This establishes the business in the current marketplace and starts the process of valuation.

Some factors that we assess are adjusted net profit, location, market value, freehold or leasehold premises, and the involvement of the owner. We also consider unique factors that may affect business value. If your business has a well-known chef or a unique selling point that broadens the audience and distance that people are willing to travel.

Changes to valuation since COVID-19

Covid-19 has had far reaching consequences into all aspects of life, this is no different to valuation. The current market for businesses and property is volatile following the Covid-19 pandemic. Supply issues for goods and staff as a result of Britain’s exit from the EU have furthered this volatility. Many chartered surveyors are valuing as per Valuation Practise Standards (VPS) and The Material Uncertainty Clause (VPGA 10) which cover various uncertainties that may arise with valuation. An non-exhaustive list can be found on the RICS website here.

Things you can do to aid determining the value of your business

Many of our clients will start consultation months before putting a business up for sale for a gradual exit strategy. Getting the presentation of accounts and signing contracts are also important and make the exit from a business easier. They also allow the business to be in best possible shape for sale.

Choosing the right agency for your business is also an important process. Some opt for larger national firms and others smaller local ones. The choice depends on which is more suited to your business as well as your personal taste for an individual firm.

We have covered some aspects of this article in previous articles! Here are our more in-depth explanations: Adjusted net profit, the differences between freehold and leasehold as well as a look at the importance of location on businesses.

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