Focus On: Valuation (and how to do it properly)

Valuing Your Company

Valuing a business is rarely a straightforward calculation. While financial performance is central, the true value of a company often depends on how attractive it appears to the right buyer. Two different acquirers may view the same business very differently, which is why identifying the most suitable purchaser is just as important as the valuation itself.

Before taking instructions, we conduct a thorough risk assessment of your company. By viewing it through the eyes of a prospective buyer, we can anticipate the factors that may influence value and ensure you are in the strongest possible position when negotiations begin.

Assessing Key Value Drivers

Buyers consider many elements when forming their view of value. Among the most significant are:

• Financial performance, past and projected
• Key relationships with customers, suppliers and staff
• Management structure, especially if the current shareholders plan to exit
• Succession plans and second-tier leadership
• Operational dependencies that may need to be addressed by an acquirer

Understanding these elements early gives us the opportunity to address potential concerns and present your business in the best possible light.

How Buyers Look at Value

While each acquirer approaches valuation differently, there are common themes that underpin most assessments.

Profitability

Buyers will analyse historic profitability over the past three years and place significant weight on future forecasts. While they are buying the past performance, their investment is based on future opportunity.

What’s Included in the Sale

Tangible assets, such as freehold property, can influence value. Buyers will consider whether they wish to purchase or lease property, and this flexibility can shape both valuation and deal structure.

Surplus Cash

Surplus cash built up in the business can often be extracted tax efficiently before completion, provided sufficient working capital remains in place. This can influence the overall structure of the deal and the proceeds received by the seller.

Beyond the Numbers

Valuation isn’t determined by financials alone. A range of commercial and operational factors can either enhance or reduce a buyer’s perception of value:

• Market position: How your company compares to competitors and what differentiates it.
• Owner involvement: A business that can operate independently is often more attractive.
• Management depth: A strong leadership team gives buyers confidence in continuity.
• Property: Whether the business occupies owned or leased premises, and how this affects profitability.
• Customer base: A healthy, diversified mix of customers is generally more valuable than heavy reliance on one or two key accounts.
• Growth prospects: Buyers pay close attention to future potential, including market trends, contracts, and pipeline opportunities.
• Legal considerations: Potential risks identified during due diligence can affect value, which is why early preparation is important.

Our Approach to Valuation

Once these factors have been reviewed, we apply an appropriate methodology to arrive at a realistic and informed valuation guide. We never market a company with a fixed asking price, as this can create an unnecessary ceiling. Instead, we use valuation as a strategic benchmark to position your business effectively and generate the best possible outcome.

Our experience across a wide range of sectors allows us to anticipate how different types of buyers assess value, and to tailor the process accordingly. This helps us strengthen your negotiating position and unlock competitive tension between suitable acquirers.



A Strategic Foundation for the Sale

Valuation is more than a number; it’s the foundation of the entire sale strategy. By understanding your company’s strengths, identifying potential concerns in advance, and targeting the right acquirers, we can help ensure the value achieved reflects the hard work and dedication you have put into building your business.