New research by Marktlink suggests that around 33 per cent of UK business owners are unaware of the value of their company – only slightly lower than the European average figure of 40 per cent.
While you are not alone if this applies to you, it is important to know what your business is worth.
Why? Let us show you.
Know your worth
The value of your business is not just a number, it is a measure of growth, what you have achieved since founding your company and its future potential.
There are many scenarios which might require you to know the exact value of your business or understand its market worth, including:
- Strategic planning – Business value, alongside data, such as revenue, turnover and profit, can help you to make strategic decisions including investments and operational improvements, as well as provide a measure of success.
- Sales or acquisitions – Most sales of a business will require an accurate valuation that reflects market rates to ensure a fair price for both you and the buyer.
- Investment opportunities – Investors will need to know the value of your business to assess risk and potential return on investment (ROI).
- Tax reporting – An accurate valuation of a business, might be required when it has been passed on to another person as part of an inheritance. A valuation could also be required when considering succession planning.
Calculating the value of your business
Put simply, a business’s value is the financial value of everything owned by your business.
While this may seem straightforward, there are a number of techniques used to calculate the value of a business depending on its sector, structure, the reason for the valuation and the type of assets it possesses.
These include:
- Asset valuation – One of the more straightforward forms of valuation, this involves adding up the total value of all assets owned by the company, including tangible assets such as land and intangible assets such as brand reputation and goodwill.
- Discounted cash flow (DCF) – A more complex and sophisticated method, DCF requires accurate cash flow projections as it calculates how much a business could be worth in the future by determining the present value of future cash flows.
- Market capitalisation – Used for incorporated companies with shareholders, this method multiplies the current share price by the total number of issued shares, which can provide a useful picture long-term, but may be impacted by market volatility as a one-off calculation.
Revenue or earnings multiplier – This model calculates the maintainable profits of a business and multiplies it by an industry-specific standard multiplier.
It is best to seek professional advice when valuing your business to ensure the valuation is based on sound principals.
Business valuations are subjective and can be complex and, as an important benchmark for the growth and success of your business, must be accurate for investors, buyers, and your own strategic decisions.
To get to know the value of your business and stay prepared for sales, investments, and market changes, get in touch with our team today.
