The easiest way to understand valuation reports is to boil them down to their constituent part. In this guide, we go through the structure of valuation reports and common formats.
Business valuation reports operate using different structures, but the information contained within is essentially the same. You may have encountered several types of valuation reports from the UK’s five million private sector businesses and seen wildly different formatting, but don’t let that confuse you.
Instead, the easiest way to understand valuation reports is to boil them down to their constituent part. In this guide, we go through the structure of valuation reports and common formats.
What is the standard structure of a business report?
Business valuation isn’t an exact science, meaning each report is a reflection of how an agent or company personally decides to structure and report the final product. However, standard reports all contain the same information.
Here’s a rundown of the basic structure:
Some reports may change the order of the structure or include different sections for highly specific reports, but these are what you’ll find in the vast majority of reports.
Common business valuation report formats
Formats are largely a matter of personal choice. For example, a report’s table of contents may come before the company overview and summary. Typically, when one refers to formats, it’s a reference to how the format might change based on the purpose of said report.
Here are some examples of different valuation reports that alter the overall format:
Summary Report – Summary reports are high-level overviews focusing on the methodology and key figures. They’re most often used for preliminary assessments.
Calculation Report – Calculation reports are another type of limited-scope report that presents a valuation using certain procedures, but without a complete independent analysis.
Comprehensive Report – The comprehensive report is the most in-depth type of report format and may contain sections you wouldn’t find in other reports. Expect these reports to cover all the angles, including financial analysis, risk factors and market comparisons.
Fairness Opinion Report – These reports are primarily used in mergers and acquisitions, but you may also find them commissioned to deal with shareholder disputes. The purpose of this format is to determine the fairness of a valuation.
Investment Report – Otherwise known as a pitch valuation report, this format is tailored to the needs of investors. Sections you might find include valuation multiples, financial forecasts and growth potential.
As you can see, although most differences in formatting are stylistic issues, formats may change based on why the report was commissioned, what it aims to find and who it’s designed for.
Speak with a Business Valuation Consultant Today
How to structure a business valuation report
Structuring a business valuation report is ultimately not about the style but the information contained within, as that’s where the value lies. With that in mind, here’s what you can expect if we use a standard business valuation structure format:
Front Cover – The front cover will include some basic details about the firm being valued, the title and the date the report was compiled.
Company Overview – The first true section provides a background on the company. Information will include issues like when the company was founded, its ownership structure, history, business model and key revenue-generating operations.
Summary of the Valuation – The valuation summary details the methodology used to achieve the valuation and the final figure. It allows anyone to find the specific valuation figure for a firm at a glance.
Contents – A basic table of contents to provide straightforward navigation at a glance.
Executive Summary – The executive summary is another high-value overview. It’s essentially the valuing agent’s explanation regarding their methodologies, what they were looking for, their key findings and their conclusions regarding the business and its current state.
Macroeconomic Outlook – Essentially, this examines the broader UK economy. It will look at issues like the current trajectory of the country, as well as issues like interest, inflation and GDP. Likewise, it may touch upon some of the core market issues influencing the valuation.
Industry Outlook – Otherwise known as the market outlook, it’s an in-depth look at the industry your company operates in. This is where the valuation agent presents their findings related to market trends, your closest competition, and the market’s growth potential. Plus, it may highlight industry-specific issues, such as the potential for regulation or deregulation.
Cost of Capital – The cost of capital is the weighted average cost of capital, which accounts for issues like risks, financing and any expected returns for investors.
Discounts – This section focuses on discounts applied that influence the valuation. The discounts chosen will vary based on the industry and the business’s situation. For example, there may be a minority ownership discount in place.
Premiums – Premiums are the exact opposite of discounts. They detail things like control premiums and any strategic value enhancements that might be present.
Conclusion – Detailed final conclusions, summarising the key findings of the valuation exercise. The final valuation figure will be mentioned again, and the valuation agent will include recommendations based on the insights their report has come across.
Appendices – Appendices are the place where you’ll find the supporting documentation used to derive the figures contained within the report. It may also contain documents highlighting the calculations used and where data was sourced from. Essentially, this is the valuation equivalent of the bibliography.
Ultimately, the structure is up to you, and there’s nothing wrong with altering the number of sections. What matters is the information contained.
Customising your business valuation report template
Your business valuation report doesn’t have to have a one-size-fits-all structure. Reports vary based on their intended audience and purpose, so it’s important to be flexible and know what’s relevant to your mission statement.
At Hilton Smythe, we understand the importance of well-crafted business reports produced by experienced professionals. If you need support creating a valuation report that accomplishes your goals, partner with us. To learn more about our business valuation services, speak to the team today.
