Reaching the right valuation for your company

By Michael Cantwell, Head of Corporate Finance 

It’s been widely acknowledged that, in the aftermath of the covid pandemic, the attitude of a significant proportion of business owners has changed towards the timing of the exits that they want to make from them.

While many would have previously been happy to continue running their businesses for the foreseeable future before considering selling or passing them on, the experiences of the last few years have led to a change in priorities that has brought this decision into much sharper focus.

As a result, we’ve been seeing more business owners bringing sale or succession plans forward, so that they can move on to the next stage of their lives sooner rather than later.

Part of this process is reaching an accurate valuation of your business that reflects its true commercial worth and gives you a private reference point on which to base any ensuing discussions with potential purchasers.

As you might imagine, this is not an exact science, and business owners do have a narrow path to walk between overvaluing what they have for sale and not getting full value for all the work that’s gone in to making their company a success.

In an ideal world, the process of valuing and selling a business is a long-term one which allows you to get full value for your assets and dispose of it in a way that best suits your needs – and it may even be that postponing the sale for a year or two might enable you to secure a better return.

But if you’ve decided that now is the time to move, the process can be condensed with the right kind of expert advice.

You need to take a pragmatic, data-driven approach to reaching a credible company valuation that will enable you to reach your goals.

Our approach is to always prepare an indicative valuation before we engage with a business owner to sell their business, to ensure that the approximate sale value that we believe we can achieve is not below a potential client’s bottom line sales price requirements.

The process also requires a recognition that company valuations are influenced by a wide range of factors, some of which, such as the general state of the economy or the fortunes of particular market sectors, will remain outside your control.

There also needs to be a tacit acknowledgement that listening to rumours about what so-and-so sold their business for is not going to be helpful, as who knows how true that sort of questionable hearsay will be.

Valuations have to be based around solid data, so after deciding on your ideal timescale, gathering up as much management information as possible for your expert advisors to review has to be the first step in the process.

This needs to look at both past performance and future expectations, so your company accounts for at least the last three years will be required, as will as much credible information as you can provide on your order book, client relationships, existing contracts and future business forecasts.

Your advisors will interrogate this information in detail, just as any potential buyers would, so you need to be ready to back up any projections or claims you’re making and answer questions about any aspect of your business’s operations.

From these discussions, your advisors will be able to identify a credible valuation and can then start to identify individuals and businesses who would be interested in hearing about what you’ve got to offer.

We’re all clearly facing a range of economic challenges, but whatever the wider situation, there are always buyers out there for quality businesses, and taking a carefully planned approach to selling yours will give you the best chance of finding the buyer that’s right for you.

For further information and advice on company valuations, or any aspects of selling or acquiring a business, please contact Michael or our Corporate Finance team on 0191 256 9500 or via michael.cantwell@r-m-t.co.uk