As specialist transaction accountants well-versed in aiding the purchase and sale of businesses we’re committed to providing clarity around all parts of this complex process, including business valuation. 

We’ve rounded up answers to the ten most common queries we encounter around valuations. Before you get started, if you need clarification on exactly what is a business valuation we’ve prepared a simple explanatory guide. 

Without further ado, let’s begin.

1. How is a business valued?

Business valuation combines experience, industry knowledge, and careful analysis of factors such as: growth potential, cash flow, sustainable profit, and brand reputation. Common methods include multiple of earnings, discounted cash flow, and asset value. 

At Williamson & Croft, we select the most appropriate method based on your business’s nature and the valuation’s purpose.

2. Why invest in a professional valuation?

While free online calculators exist, a professional valuation offers comprehensive analysis, insights into value drivers, confidentiality, and credibility crucial for tax enquiries or legal proceedings. Our expert valuations can guide strategic decisions and help maximise your company’s worth.

3. What is goodwill and why is it important?

Goodwill represents the amount paid or valued above a business’s net asset value. It’s an intangible asset relating to reputation, brand name, and customer relationships. Understanding goodwill is crucial as it often represents a significant portion of a business’s value.

4. What is the difference between personal and commercial goodwill?

Personal goodwill relates to an individual’s reputation and skills and is non-transferable. Commercial goodwill is the business’s reputation and is transferable. 

This distinction is crucial as it affects the overall valuation and potential sale value of a business.

5. Which financial metrics are key in business valuation?

Two critical metrics in business valuation are EBITDA and PBT:

EBITDA 

Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA) provides a clear picture of a company’s operational profitability. This makes it easier to compare the financial performance of different companies, even if they have varying levels of debt, different tax rates, or use different depreciation methods. 

Example: Two companies might have the same operational profitability but one could appear less profitable due to higher interest payments on loans. EBITDA eliminates this difference. 

PBT

Profit Before Tax (PBT) includes the impact of interest payments and depreciation, which EBITDA excludes. This makes PBT useful for understanding a company’s profitability while considering its debt obligations and capital investments.

While these metrics are crucial starting points, at Williamson & Croft we delve deeper, considering factors such as working capital requirements, capital expenditure needs, and industry-specific performance indicators to provide a comprehensive view of your business’s financial health and value.

6. How are minority shareholdings valued?

Valuing minority shareholdings requires careful consideration of the company’s Articles of Association and specific shareholder rights. Typically, a minority stake is valued with a discount applied. Our experts can navigate these complexities and provide accurate valuations for all types of shareholdings.

7. How accurate are business valuations?

Accuracy depends on the quality of information provided and the valuer’s expertise. At Williamson & Croft, our thorough approach has been demonstrated through successful sales and management buyouts.

8. How can a business valuation benefit my company?

Beyond providing a sale or investment figure, a valuation can:

  • Identify areas for adding value
  • Help create growth strategies
  • Provide competitor benchmarking
  • Assist in financial planning

Getting a clear picture of your company’s finances can help with more than just understanding what it could be worth. If you’re considering a business valuation you may also find significant benefits of auditing as well. 

9. What information is needed for a business valuation?

Typically, we require:

  • The last three years of financial statements
  • Current management accounts and forecasts
  • Details about operations, customers, and competitors

We communicate with your team’s finance department to gather all necessary information efficiently.

10. How long does a business valuation take?

The timeframe can vary depending on the complexity of the business and the information available. At Williamson & Croft, we typically aim to complete valuations within 2-3 weeks of receiving all necessary information. We also offer expedited services for urgent needs.

How Williamson & Croft can help

Business valuations are a complex process requiring expertise in financial metrics and more intangible factors. Our team of experienced accountants provides comprehensive and precise valuations tailored to your specific needs. 

Whether you’re considering a sale or purchase, don’t leave your business’s value to chance. Contact our expert team at Williamson & Croft today to discuss how our business valuation services can support you.

Get in touch with our expert accounting specialists at Williamson & Croft today.