Business Valuation: How to Value Your Company and Prepare for Sale or Investment

Thinking of Selling, Raising Investment, or Planning a Merger? Start with a Business Valuation

Before you take any major step, whether that’s selling your business, attracting investors, or entering into a merger, you need to understand what your business is worth. A proper valuation lays the foundation for everything that follows. Here’s a straightforward look at what business valuations involve, why they matter, and how you can begin the process with confidence

What Is a Business Valuation and Why Does It Matter?

A business valuation tells you what your business is worth in financial terms. But it does far more than that. It’s a tool for decision-making, essential when you’re planning for growth, succession, tax efficiency, or protecting what you’ve built.

If you’re offering equity to employees, a clear and accurate valuation helps set fair expectations. It also ensures you’re adequately covered by insurance in case the unexpected happens.

Whether you’re preparing for an exit, seeking funding, or simply planning ahead, knowing your business’s true value is essential.

The Four Main Business Valuation Methods Explained

There are several ways to value a business. Each has its place, depending on your industry, assets, and stage of growth. Here are the four most commonly used:

1. Asset-Based Valuation
This method calculates your net asset position, your total assets minus your liabilities. It’s particularly relevant for asset-heavy businesses like manufacturers or property firms.

There are two key approaches:

2. Market-Based Valuation
This involves comparing your business to similar ones that have recently sold. It’s much like valuing a house based on local sales. This method is useful for gauging how the market might price your business.

3. Income-Based Valuation
Focused on the future, this method estimates what your business could earn in the years ahead. It’s widely used for growing or high-potential businesses, such as those in tech or professional services.

Two common techniques:

4. EBITDA Valuation
This method looks at your business’s earnings before interest, tax, depreciation, and amortisation. It applies a multiple, usually based on your industry’s norms and market activity.

It’s widely used in sectors with established benchmarks and provides a reliable, less subjective valuation compared to forecasting-heavy approaches like DCF.

Five Steps to Start Valuing Your Business

You don’t need to be an expert to begin, but it helps to approach the process methodically. Here’s how to get started:

1. Gather Financials
Pull together at least three to five years of accounts, including P&L statements, balance sheets, and cash flow reports.

2. Forecast Earnings
Build forward-looking projections based on your current data. Consider market trends and potential risks.

3. Choose Your Valuation Method
Pick the approach that fits your business model and goals. Using more than one method can help validate your result.

4. Benchmark Your Business
Compare your performance and valuation with similar businesses in your industry. This adds realism and context.

5. Speak to an Expert
Valuations can become complex, especially when strategy, emotion, or negotiation is involved. Professional advice helps you avoid blind spots and strengthens your position.

Want to Know What Your Business Is Really Worth?

Valuing a business isn’t just about the numbers. It’s about understanding where your company stands, what it can achieve, and how others see it. Whether you’re planning to sell, raise capital, or map out your next move, a sound valuation is a key part of the process.

Even if you are not at the stage you are wanting to get a business valuation done, it might be worth speaking to one of our advisers to get an understanding of the process and to see how we can help when the time comes.

Looking to get a business valuation done? Contact the team today