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Methods of Business Valuations

There is no 'correct' price for a business. Valuing a business is always an imprecise science, even with large-cap public companies. The right price is one that a willing buyer is prepared to pay and a willing seller is prepared to receive.

Value is, to a large extent, dependent upon who is doing the valuing and for what purpose: for example, a distributor of electrical goods may find that the business is of more value to a related manufacturer than to an unrelated buyer. An industrial manufacturer with five solid customers is likely to fetch a lower price than a similar-size competitor with 50 outlets because its revenue source is less diversified.

There are a number of methods of valuing businesses including:

  • Comparison-based valuations
  • Price earnings ratio basis of business valuation
  • Discounted cash flow
  • Net asset value and goodwill

If your business has a turnover of £500k or more and you are interested in receiving a free no-obligation business valuation, please fill in the form below, call us on 020 8875 0200 or email your details. We have a panel of experts covering most sectors who can help you determine the right selling price for your company.

No Obligation Business Valuation Form

1. Your details (these will be kept completely confidential)
Please use Upper and Lower case (NOT ALL CAPITALS).

Your Name
Your Company name
Your Telephone number
Your Email
Please indicate your role in this company

2. Details of the Business for Sale

Please indicate the appropriate business category
Company type (one or two words)
Description
Please write a description of the company's activities here. Please limit the description to 400 characters, which is approximately 60 words. Include as much detail as possible.
Approximate turnover per annum
Net Profit (if possible please)



Methods of Valuing a Business
Read our guide about all the various different methods of valuation. Such as, comparison based valuations, Price earnings ratio basis of valuation, Asset based valuation and discounted cashflow.
Company Exit Multiples
Exit multiples are defined as total sale price divided by the profit. In other words how many years it would take to pay back the price out of the current level of profit. Of course when you pay high multiples for a business you are expecting the profits to rise in the future. BDO Stoy Hayward publish the Private Company Price Index or (PCPI) that gives and indication of the multiples
Internal Rate of Return
This method of valuation is more objective and involves setting the Return on Investment requirements for the buyer. This method is more favoured by Venture capitalists and can involve some complex mathematics.
Evaluating a Target Company
In order to arrive at a reliable valuation it is essential that the figures you have are a true reflection of the health and profitability of the business.
Caveat Emptor - What to look out for when buying a business
There are many purchasing pitfalls that can trap the unwary. People sell their homes for a range of obvious reasons, and they renew their cars regularly, but the promptings for selling a business are less apparent, unless there is something wrong.
Private Company Price Index ( PCPI) 4th Quarter
There are many purchasing pitfalls that can trap the unwary. People sell their homes for a range of obvious reasons, and they renew their cars regularly, but the promptings for selling a business are less apparent, unless there is something wrong.
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