Are you curious about what your company is worth? If you’ve heard the term “company valuation” but find yourself puzzled by the various methods used to determine a business’s value, you’re not alone. Understanding the importance of company valuations is essential for shareholders and business owners alike. It’s not just a number; it’s a key insight that can influence your strategic decisions, attract investors, and drive growth.
Jo Haigh, Founder and Chairman of fds, shares a guide to company valuations and how they can help many situations.
What is the Purpose of a Company Valuation?
Similar to selling a house, it is the norm to enlist the help of a professional to give you an accurate estimate of your business’s worth before you put it on the market.
You may know what value you would like for your business, however this could be different from what you may realistically achieve. Therefore, you should always start with a company valuation to truly understand what your business is worth. The valuation is what we call a technical valuation. It might not be exactly what you’ll get, as you could get more or less depending on the buyer. However, the valuation is crucial to have as a benchmark and to understand the assets you manage.
Possible Reasons for Undertaking a Company Valuation
Aside from selling your business, there are many other possible reasons for obtaining a business valuation. It could be that you’ve had a disagreement with your shareholders, or you want to accelerate business growth and are seeking investment from third parties.
It’s important to know that if you haven’t got a shareholders’ agreement in place, this could offer additional complexities. For example, how a minority shareholder is valued may be completely different. This could be because, if you only hold 49% of a business, it’s not necessarily going to be worth pro rata the 100%. There could be many factors affecting business valuations which require enlisting professional advisers to navigate these complexities.
Supporting Information Accompanying the Valuation
A company valuation report incorporating insights from real market deals and industry analysis can be incredibly insightful and supportive of a projected value. By including data from comparable transactions, the report provides a realistic benchmark, reflecting what similar companies have been valued at in recent deals. This market-based evidence helps validate the valuation, making it more credible and defensible. Additionally, industry research analysis offers context on how the market has been performing, highlighting trends, growth prospects, and potential risks within the sector. Together, these elements ensure that the valuation is grounded in actual market conditions and industry dynamics. This will ensure a comprehensive and accurate picture of the company’s worth.
If you want to better understand your company’s value, learn more about the valuation services that fds provides here.