Maximising Business Value

When contemplating the sale of a company, it is important for the directors and shareholders to understand how businesses are valued so that informed and timely decisions can be made when approaching a sale.

It is important to have an understanding of the key factors involved in the valuation process, and how this can help shareholders to enhance and maximise value on disposal.

There are many different ways and methods used in valuing companies. Often the sector in which the business operates dictates the valuation approach, although the most commonly used method is linked to a company’s profitability. As you may expect, the more profitable the business, the more it is worth. However, this is not always the case.

There are a wide range of factors which affect a business valuation, a lot of which are subjective and therefore difficult to quantify. Issues, such as changes in legislation, market trends and the general global economic outlook are completely outside the control of the shareholders.

However, owners can influence the valuation by making early pro-active decisions in key areas to strengthen and enhance a company’s attractiveness and, ultimately, increase its value. Factors which can positively influence the value include:

  • A strong management team with a clear and robust plan of how to take the business forward
  • A strong order book
  • Diverse customer base
  • Developing and establishing a leading product, service or brand
  • Continual innovation of product/service offering
  • Operating within a niche market

Although it may not be possible to implement all of the above, any steps taken to create a competitive advantage, or differentiate a company’s products or services, will enhance its attractiveness and in turn increase its saleability and value.

Irrespective of the wide range of both internal and external influences, the calculated value of a business is only a starting point. Ultimately the true value of a business lies in what a buyer is willing to pay for it. It is therefore important to take a step back and think about what steps could be taken now to maximise the chance of obtaining the best possible price for your business when you do decide to sell.

Our Corporate Finance team are currently working with a number of businesses, helping them identify and implement strategy to enhance value in advance of marketing these businesses for a sale, as well as working on a number of major disposals. In addition, we are working with a number of growing businesses including business planning, fundraising and acquisitions. Please get in touch if we can help you and your business with anything similar.