Knowing what to look for will enable you to decode your report and provide the information you’re searching for. Here’s what to look out for in your business valuation report.
Business valuations are crucial when buying or selling a business. Likewise, business owners may commission reports to determine their current position and whether their progress aligns with their short, medium and long-term goals. Yet, according to the most recent research, 33% of UK business owners are unaware of what their companies are worth.
Valuation reports aren’t always the most straightforward documents to analyse, with more complex reports potentially reaching 100 pages. Knowing what to look for will enable you to decode your report and provide the information you’re searching for.
Here’s what to look out for in your business valuation report.
What should be included in a business valuation report?
Business valuation reports will differ depending on who prepares them and the firm they work for, but the information provided will generally be the same. Here’s a rundown of what you should find in your business valuation report:
Each section can be highly complex, especially when dealing with larger businesses. Likewise, the formatting might differ from report to report, but a credible report will always cover the same bases.
We Can Help with your Business Valuation Report
What to look for when reviewing a business valuation report
Your business valuation report contains a mountain of information. Deciding what’s relevant to you is challenging because it depends on the reason for commissioning your report in the first place.
Generally, you want to be as thorough as possible when reading your report, but here are a few areas to concentrate on.
Final valuation
The first thing you want to know is how much your business is worth according to the independent valuation agent. You’ll find this figure at the front of the report and the conclusion of the report.
Detailed introduction
The introduction may sound like something you can skip because you already know what your company does and its details. On the other hand, the introduction also sets the valuation parameters.
For example, the introduction will outline the context in which the report is being used. It could be selling a business on the open market, a specific investor, or even passing it to a family member as part of your succession plan.
Economic assessments
Your valuation will always consider broader economic factors. Depending on the industry and business size, this may include the national economy, local economy, or both. What’s happening outside the walls of your business matters and will have an enormous impact on your valuation.
The valuer should clearly outline which economic figures they’re using and how those figures have been used to arrive at the final valuation.
Financial analysis
The financial analysis section concentrates on your business. In other words, this is where the valuer examined everything from the balance sheet to your cash flow statement. Run through each section to determine whether the correct figures were used.
Mistakes happen, and getting these numbers wrong can provide an inaccurate view of how much your business is actually worth.
Additionally, look for any financial projections that might have been used. The chances are you already have your own projections to compare them to. Ask yourself whether they’re realistic and supported by evidence you can refer to.
Risk assessments
All business valuation reports reflect on the risks that could threaten the company’s growth in the years ahead. Typically, risks are split into two categories:
Why do these matter? Aside from an accurate report, they shed light on some of the pitfalls your business could face. Knowing about them now provides the foundation for mitigating them before they happen.
Questions you should be asking about a valuation report
Once your report has been delivered, you’ll still have the chance to ask the agent questions about your report. The fact is most UK entrepreneurs aren’t well-versed in the intricacies of valuation, which is why working with an expert is vital for answering questions and providing context for your report.
Some of the core questions to ask about your report include:
Naturally, you may also be new to reading these reports and require a guided review of your report. Your valuation agent should be able to clear up any points of confusion and provide clarification on key terms to shed more light on the report’s findings.
Speak with Our Experts About a Business Valuation Report
Do you need an expert to review a business valuation report?
Many company directors choose to review their business valuation reports themselves, but the intervention of an expert can be highly valuable. Expert reviews are ideal for complex valuations, if you’re dealing with a disputed valuation or need a second opinion.
Likewise, you may want to use your valuation report as a springboard to deal with specific issues. For example, you might be worried about your tax obligations or estate planning. Working with an expert can help you organise your affairs with the support of your valuation’s findings.
At Hilton Smythe, we understand the complexities that can arise with business valuations. Beyond supporting businesses in getting accurate valuations, we provide independent financial advice and business guidance through our array of experts. To get help with making the most of your valuation report, get in touch with our team today.