How to Prepare a Business Valuation Report

Business valuation reports are the cornerstone of finding out how much a business is worth. These documents remove hearsay and emotion to provide an objective viewpoint of what an entity is worth.

With the average turnover of UK businesses increasing year-on-year, valuations change constantly, making it difficult to keep track of your worth. In this guide, we’re going to discuss further how these reports are done and what you can expect to find inside.

What is included in a business valuation report?

Look at a report for the first time, and it’s easy to get intimidated. Did you know that some of the more complex reports exceed 100 pages? Unless you’re an expert, it can be tricky to know what you’re looking at. This is one reason why 33% of UK business owners don’t actually know what their companies are worth.

At its heart, reports are just opinions, but they’re informed opinions backed up by a wealth of evidence. Within your report, you can expect to encounter information like:

·  Business details

·  Methodologies used

·  Schedules and sub-schedules

·  Valuation in pounds

·  Macroeconomic factors

·  Industry factors

·  Business strengths

·  Business weaknesses

·  Business opportunities

·  Business threats

·  Alternate methodologies

The problem with any report is that you can get two different results based on who’s valuing it and the methodology they’re using.

We go into more detail about what is included in a business valuation report in our dedicated guide.

Types of valuation reports

Another issue that often shocks people is that no two reports will look the same. Every company will have its own way of creating and formatting reports. However, that doesn’t mean the information you’ll see will differ. On the contrary, valuation reports are standardised when drilling down to the bare bones.

Likewise, you’ll encounter different types of reports employed in different scenarios. Here’s a rundown of just some of the reports you can order:

Full Narrative Report – Comprehensive valuations that provide an in-depth analysis of everything from your firm’s financial performance to how it fits into your industry and its prospects.

Summary Valuation Report – These reports focus on giving you a bird’s eye view of a business providing key financial information. Businesses often use these if they’re looking for a point of reference.

Calculation Report – Estimated valuations used for less formal scenarios, like discussions over prices. You’ll also see calculation reports used when companies need a quick internal estimate.

Expert Witness Report – If you’re involved in litigation, an expert witness report is a highly detailed report that can be used in a courtroom setting. As expected, these reports adhere to the UK’s court standards.

Tax Valuation Report – These reports are designed specifically for tax purposes. For example, you might use them if you’re planning out your exit strategy.

As you can see, these reports can be employed in various scenarios. Which report is right for you depends on why you want the report in the first place. For example, if you’re commissioning regular reports to track your performance, a more concise report type is likely the best option.

What is the structure of a business valuation report?

All reports will contain similar information, but that doesn’t mean they’re structured in the same way. Understand that reports are customised to the business’s needs and then created based on how a valuation agent chooses to format their reports.

Let’s go through an example of what a standard report might look like:

·  Cover.

·  Basic details, including your company’s name and type of report. This section may also include a basic description of the methodologies used.

·  Valuation summary.

·  Table of contents

·  Executive summary for a quick report overview.

·  Macroeconomic outlook.

·  Industry outlook.

·  Overview of your business.

·  Cost of capital.

·  Discounts and premiums applied.

·  Conclusion.

·  Appendices consisting of supporting material.

Again, every report can be tailored based on what you want to use it for. Likewise, every company will have its own system for structuring these reports. What really matters, though, is the information contained within.

Preparing for a business valuation

So, you’ve commissioned a valuation report, what happens now? Thankfully, your valuer will handle practically everything, but the quality of any report depends on the information provided. If information isn’t available, your valuation isn’t going to be as accurate as you expect.

Generally, the key to preparing for a valuation is to ensure all the necessary information is available. Examples of requests that could be made include:

·  Financial Documents – Expect to provide current and historical financial information, including financial forecasts.

·  Ownership Information – Provide information on the owners, including their roles and what compensation they receive.

·  Management Information – Offer details on who manages the company. Focus on key personnel responsible for defining the direction of the business.

·  Governance Documents – Governance documents define how your business operates. Valuation agents must know about matters like the tax structure of the company, voting stock and more.

In other words, as long as you can make as much data available as possible, you’ll get a better-quality report.

Creating an effective valuation report

At its most basic level, creating an effective valuation report is about the following eight steps:

1. Define the purpose of the valuation.

2. Establish the basis of value.

3. Define the premise of value.

4. Review the business’s historical performance.

5. Discover the firm’s prospects.

6. Work out the valuation approach to use.

7. Apply any relevant discounts.

8. Figure out a value for the business.

However, what goes into each of those steps is expertise, in-depth market knowledge and experience. Accurate valuations are both a science and an art form. Simply knowing about using different methodologies isn’t enough. This is why many leading industry valuation agents have experience within that industry, giving them unrivalled market knowledge.

At Hilton Smythe, we support businesses in preparing accurate valuation reports they can rely on. With decades of experience supporting some of the UK’s leading businesses, our team is ready to provide you with the report you need. To learn more, speak to the team today.