How Do Business Valuation Companies Reach Their Valuation?

If you run a business and have recently had it valued or are thinking about getting a business valuation in the near future, you may be keen to understand how the company comes to the figure that they do. Allow us to provide you with a quick overview of what is involved in calculating a business valuation.

The Size Of The Business

Whether the business is large, mid-range or small is going to have a major impact on the business valuation. For instance, often a mid-range company is a private company and in general, they can generate excellent profits. This may differ to a small company run by a sole-trader where the person who owns the business could be the makings or breaking of the success of the business.

Deciding On The Multiple

The multiple is a key factor used by valuation companies in determining the value of a business, however, it is impacted by several other key areas, some of these are as follows:

– The company sector – is the company in a hot trending sector or has it already started to pass its peak?

– The financials – are the accounts in good order and showing a promising future or is everything a little ad-hoc?

– Profit margin – is there a stable healthy profit margin or are the profits vulnerable?

– Owner dependency – can the business survive without the current owner, for instance, does a strong management team exist?

– Customers – is the target audience wide and growing or is the business serving a small niche of declining individuals?

Of course, there are many other factors that come into play when valuation companies reach their final figure, however, the information above should give you an overall view of what comes into play when a business valuation is calculated.