Wondering how to value a business?

If you’re running, selling or buying a business, then it’s essential to have an accurate understanding of how much it’s worth. 

In this guide, we’ll explain how to value a business in the UK.

Why value a business?

Valuing a business isn’t just about getting a picture of the company’s profit and loss – it can give a detailed and accurate understanding of the business’s chance of success over time.

Reasons to value a business include:

  • To help you buy or sell it
  • To give investors a realistic idea of the company’s value when seeking funding
  • To enable you to set a fair price if employees want to buy or sell shares
  • To give you a clear picture of your company’s financial health, so you can improve performance

What affects a valuation?

There are many different things that can affect a business’s valuation, including:

  • The reason it’s being valued – for example, a forced sale is likely to result in a lower valuation
  • The age and stability of the business
  • The people involved – if your management team has a strong track record and you have a team of loyal staff, this is likely to increase the value of the business
  • Tangible assets, such as a business premises, stock and equipment
  • Intangible assets, like the company’s reputation and relationships with clients
  • The general state of the economy and the market the business operates in

How to value a business in the UK

There are various methods of valuing a business, and it’s worth testing out a few options to see which works best for you. Here are a few examples:

  • Asset valuation: Add up the value of your tangible and intangible assets, and subtract the costs of your liabilities, and you’ll have the asset valuation. This method of valuation works well for companies with significant assets
  • Entry cost valuation: This method values a business by calculating what it would cost to start a similar business from scratch. Factor in the costs of acquiring assets, developing products, recruiting staff and finding customers, as well as any potential savings you could make by, for example, using more cost-effective equipment
  • Comparable analysis: This is a simple method that involves appraising the value of similar businesses that have recently been sold, or whose value is publicly known, to give an estimate of the value of your business
  • Discounted cash flow: The discounted cash flow method is one of the most complex approaches to valuing a business, and is based on expected future cash flow. This method is useful for mature, stable businesses with predictable cash flows
  • Industry best practice: In some industries where buying and selling businesses is more common – such as retail – there may be specific rules of thumb that you can use to value your business

How to value a business in the UK: final thoughts

As you can see, there’s no one-size-fits-all approach to valuing a business. 

If you’re wondering how to value a business in the UK, it’s worth seeking professional advice to ensure you get the best result.

If you’d like to know more about business valuation, feel free to get in touch with us.