If you want to determine how much your business is worth, you’ll need a business valuation. There are various situations in which you might be asked for one. Here are some of the most common scenarios we see.
5 reasons you might need a business valuation
1. You’re selling or merging your business
One of the most common reasons for getting a business valuation is that you’re selling part or all of your business, or you’re merging with another company.
In this case, a valuation is not mandatory, but it can make it easier to secure a fair price for your business. Overestimating your business’s worth may make it difficult to sell, while underestimating it means less money in your pocket after the transaction is over. A business valuation can help you secure and negotiate a price in line with the firm’s market value.
2. You’re buying/selling company shares
Business valuations are essential when buying or selling shares in a company. An owner leaving the company will want to sell their shares for market value, while a new shareholder also needs to purchase them at a fair price.
You will require a valuation if you want to sell your business to employees using an employee ownership trust.
You’ll also need an HMRC-approved share scheme valuation if you want to access certain share schemes such as the share incentive plan (SIP) or implementation of an EMI scheme.
Whatever the circumstances, it’s a valuer’s job to improve transparency between shareholders and ensure no parties are shortchanged. If you’re bringing someone new on board, a professional valuation can also make the new owner more confident in their decision to join the business.
Working with experienced appraisers is also vital in the case of conflicts between shareholders. If you need to resolve an ownership dispute, an independent valuer can help you reach a fair settlement.
3. You want to secure funding
Do you have big dreams for your business? Thinking about expanding your current offering or setting up shop in a new location? Unless you have large piles of cash in reserve, you’ll probably need external funding to reach your growth ambitions.
While a business valuation isn’t strictly necessary for raising capital, being transparent about your business’s worth may improve your credibility with investors and lenders. An objective valuation can also make it easier for them to make their decision.
4. Your personal circumstances change
If you get divorced, you’ll usually need to divide your personal assets, which can include the value of your interest in the company. As a result, your spouse could be entitled to 50% of that value.
While it may be tempting to skip a valuation in the hopes that it will save you money, we’d advise against it – and that’s not just because honesty is the best policy. Estimating your business’s worth instead of opting for a valuation could result in you paying out more than you need to.
5. You’re planning for the future
A business valuation can help you draw up a solid succession plan.
Perhaps you want to pass your business on to the next generation, or maybe you’re thinking about selling up when you hit retirement. Whatever your goals for the future, a business valuation can play an important role in helping you set and achieve them.
An up-to-date valuation can help you draw up a strategy and set achievable goals tailored to your circumstances. From there, you’ll be able to set out a blueprint for business success more easily.
Valuations you can trust
Business valuations require expertise to get right, so you should always work with a qualified professional you can trust.
We’ve prepared dozens of valuation reports for clients over the years. So no matter whether you’re selling shares, restructuring your business or need to divide assets as part of divorce proceedings, Team SAS has the tools, experience and specialist knowledge to help you get the best results.
Check out our business valuation page to find out more about our comprehensive valuation reports, and contact us to book a consultation.
To learn about this topic in even more detail, take a look at our ‘Crash course in business valuations’ webinar – or get in touch with our team for a free consultation.
Another article of interest: A Guide to Business Valuations
Use of this information is for reference only. Specialist Accounting Solutions Ltd accepts no liability for any errors therein or any losses or damages arising from it.
