Business valuation is one of the most important investigatory tools a business can utilise, especially during mergers and acquisitions, when seeking investment and forming partnerships.
What is business valuation?
Business valuation is the process of defining the economic worth of a whole company unit. A professional business evaluator will provide an objective estimate of the value of the business, so you can rest easy knowing you have all the information.
When do you need a business valuation?
A valuation of your business is essential if you are looking to get the most out of the sale of a business or a merger and acquisition. It is the process of estimating a business’s economic worth. This provides the business owner and involved parties with crucial facts and figures regarding the company’s asset and income values, market competition and total company value. A realistic and accurate business valuation could prove valuable when seeking additional investment or if you are contemplating selling your business.
Keep in mind that not all reasons for a business valuation are business-related. The need may arise through personal disputes, matrimonial proceedings, inheritance tax, capital gains, or qualifying for Enterprise Management Incentive schemes (EMI).
At Blackhawk Intelligence, our experts have a solid track record in assisting clients maximising the value of their business. Your business is unique, and we understand that you require a reputable and thorough approach to ensure the integrity of your company. We provide a comprehensive valuation, assessing all aspects of your business to achieve precise and fair market value.
Call Blackhawk today on +44 (0)20 8108 9317 and find out how we can help you.
Business valuation methods
A business evaluator may utilise a variety of methods when appraising your company. These are a few stand out approaches that prove essential when considering fair market value.
Times Revenue Method
This valuation method generally values a business as a stream of cash. Often, revenue is considered in regard to its industry sales multiples. A start-up cafe, for example, could be valued at 2x revenue, whereas a law firm could be valued as 4x revenue. This approach, however, does not always give an accurate depiction of profit as revenue does not always equate profit.
Perhaps the simplest method of business valuation, this method multiples the number of shares outstanding with the current price of a single share. It is a metric based on stock price. For example, a company with 25 million shares, which has a stock price of £50, would have a market cap of £1.25 billion. Stock prices, however, are incredibly prone to change.
Book value and liquidation value
Both methods are based on asset value. Book value is found by subtracting the liabilities of a company away from its total assets and is generated as a balance sheet statement. Liquid value is found by considering the net cash gained if all assets were liquidated and paid off.
This simplified valuation tool can be used to compare the relative cost of shares. It determines how high the current stock price is in relation to the company’s earnings. This can predict the future cash flows and value of the company.
Discounted cash flow (DCF method)
Similar to earnings multiplier, the DCF method takes inflation into consideration when calculating future cash flow and value.
How does Blackhawk value a business?
Realistic business valuations are based on a solid appreciation and understanding of the business itself. All businesses are unique as key staff members, intellectual property, a single high-value customer, specific technology or experience can provide a critical competitive advantage.
Blackhawk Intelligence utilises a multi-levelled approach, considering many complex factors to gain a thorough understanding of your business, including:
- Your key personnel
- Intellectual property
- Client base
- Conditions in your market and economic climate
- The competitive environment
- Industry dynamics
- Specific business activities
- Management structure
- Considerations and even the purpose of the valuation
Our process with you starts with a discovery phase, where during our first meeting, we aim to gather information from you, including management and statutory accounts. We will dig deeper into how your company operates and identify the key value areas. From there, we use a variety of tools to assess value, including; comparative analysis, financial modelling and our judgement based on years of experience.
Understanding the importance of accurate business valuations
An up to date business valuation should ideally be done once a year to safeguard against significant changes in the business. Failure to do so could affect future sales or dissolutions of the company (in extreme circumstances). Some things to consider are:
- The passing of the owner
- Opportunity for sale or merger
- Addition of new owner
- Exit of shareholders
- Divorce or family issues
A business valuation will also provide a stable platform from which to negotiate mergers and acquisitions. Knowing your business’s value will enable you to navigate the murky waters of business negotiation.
Moving forward with Blackhawk’s business valuation services
Once your business’s worth has been established, you will be able to set new goals to increase and build upon existing value. With an up-to-date valuation, you will be able to look back at previous valuations and compare growth, loss and asset worth. You will be able to effectively plan your business strategy, with a focus on achieving short- and long-term goals, as well as reducing risk.
Our business valuation team has extensive experience in these areas, so call our team today on +44 (0)20 8108 9317 and discuss how we can assist in valuing your business.