No Column Title – 4682 Get a professional valuation for the business and research any funding that you might need at an early stage.
There are a number of different ways of valuing a business, depending on what type it is, and usually a combination are used to provide a range of values. We have the expertise to assist you and to talk you through the rationale for the most appropriate methodology. Below is a summary of the more common approaches to give you a flavour.
Asset valuation: if your business has significant tangible assets for example any property or machinery. You would add up your assets subtract your liabilities to give you the overall value.
Price earnings ratio: this would be used to value a business which is making significant and sustainable profits. To do this you would multiply its profits by an appropriate multiple or price earnings (P/E) ratio. As P/E ratios can vary widely, you would use commercial knowledge of the particular industry sector or market to establish at what level it should be set.
Discounted cash flow: this would be used for a business which is forecasting significant and steady cash flow for a number of future years. The discount rate used will take today’s value of the predicted cash flow and will apply a discount rate which accounts for the time value of money plus the risks of operating in that particularl industry sector. So £1 earnt today will be worth less than £1 earnt in a year’s time.
Industry rules of thumb: some established sectors have a set standard formula for calculating the value of businesses operating in them. It could be a set multiple of turnover or it could be based on the number of customers the business has.
Entry cost: this methodology looks at the cost of setting up a similar business from scratch and using the anticipated the costs as a way of putting a value on it. For example they could include the development costs for your product or service, recruiting and training staff, and buying equipment.