How to value a business - Company Valuation Methods
What methods are used to value a business?
Common methods of valuing a business include:
A multiple of EBITDA
A multiple of the business annual turnover
A multiple of the net profits
A valuation based on the balance sheet
Discounted cash flow
The important thing to note is that the above methods give only a general indication of value. A professional business sale advisor will be able to give you a much better understanding of what methods and multiples should be used to accurately value a business for sale.
What method should be used?
Profit is the single most important factor of business valuation as such most business brokers use a multiple of EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) to provide an indication of value.
What Multiple should you apply to a business valuation?
Typically multiples of non-listed, middle market or SME businesses range from one up to ten times.
There are many aspects of a company that will positively affect valuation including e.g. Historic and future forecasted growth, a strong position in a niche market place, profit to turnover ratio and strong customer retention. Factors that can negatively affect business valuation include over reliance on a single or small group of customers or suppliers, risks to the supply chain, a weak management team and high staff turnover to name just a few.
How much does a valuation cost?
Hyde House will provide an assessment of your business value free of charge for businesses with a turnover of £1m and greater.
Our advisers will use their knowledge and experience of the M&A market place to provide a realistic indication of value and help you to understand the driving factors of your valuation.
If we do not think we can meet your value expectations we will candidly inform you that we are not confident that your desired valuation can be achieved. We will explain our methodology and offer advice on preparing your business for sale.
Can I value my business online?
If you would like to explore the potential value of your business prior to talking to us please try this independent valuation reporting tool. Again we stress that Hyde House will give you a deeper and personal insight into the likely value of and the likelihood of selling your specific business.
This tool is free of charge and takes no more than 15 minutes to complete. Once you have completed the questionnaire we shall provide you with your report, talk you through its findings and answer any questions you may have.