A business valuation is an assessment of what a business is worth, based on its earnings, assets, market position and risk profile, carried out for purposes such as a sale, a shareholder dispute, divorce proceedings, succession planning or raising finance. The right valuation depends heavily on why it is needed — a figure prepared for a genuine sale negotiation looks very different from one prepared for HMRC purposes or a shareholder buyout.
Why “what’s my business worth” rarely has a single answer
Business owners often ask for “the value” of their business as if there is one correct number. In reality, valuers use several different methods, and the right one (or combination) depends on the type of business, its profitability, its asset base and the purpose of the valuation:
- Earnings multiples (EBITDA or profit-based). Common for trading businesses with a track record of profit, where value is expressed as a multiple of maintainable earnings. The multiple itself depends on sector, size, growth, customer concentration and owner dependency.
- Discounted cash flow (DCF). Values a business based on projected future cash flows, discounted back to a present value. More suited to businesses with reliable forecasting, such as those with contracted or recurring revenue.
- Net asset value. Relevant for asset-heavy businesses, or as a floor value check even where earnings-based methods are the primary approach.
- Comparable transactions. Looking at what similar businesses in the same sector have actually sold for, where reliable data exists.
A credible valuation will usually triangulate between more than one method, and explain clearly why a particular approach and multiple has been used, rather than presenting a single unexplained number.
The factors that most affect your multiple
Two businesses with identical turnover can be worth very different amounts. The things that most commonly move the multiple, in our experience with owner-managed businesses, are: how dependent the business is on the owner personally; how concentrated revenue is in a small number of customers; the quality and recurrence of revenue (contracted or subscription income is valued far more highly than one-off project work); the strength of the management team below the owner; and the quality of the financial records themselves. A business with clean, up-to-date management accounts and a demonstrable trend of profit will always be easier to value credibly, and usually attract a stronger multiple, than one with messy or late-filed accounts.
When you need a business valuation
- Selling the business, or preparing to bring in an investor or partner
- Shareholder or partnership disputes, where an independent, defensible figure is required
- Divorce or matrimonial proceedings, where a business interest forms part of the matrimonial assets
- Succession and exit planning, to understand the gap between current value and a target sale price, and to plan the years in between
- Employee ownership trusts or EMI share schemes, where HMRC requires a supportable valuation
- Raising finance, where lenders or investors want to understand the underlying value being secured
What a proper valuation exercise involves
A robust valuation is not a five-minute multiple applied to last year’s turnover. It involves normalising the earnings (adjusting for one-off costs, owner’s above-market salary, or non-trading items), reviewing at least three years of financial history, understanding the sector and its typical transaction multiples, and stress-testing the assumptions. Where the valuation is for a sale or a dispute, it also needs to be defensible under scrutiny from the other side’s advisers.
How Artema approaches business valuations
As a firm regularly involved in the acquisition, sale and restructuring side of transactions, not just the accounting side, we bring a practical, deal-tested view of what a business is genuinely likely to achieve in the market, not just a theoretical multiple. We work with business owners across Ringwood, Wimborne, Poole and Bournemouth on valuations for sale preparation, shareholder matters, divorce proceedings and succession planning.
Frequently asked questions
How much does a business valuation cost?
This depends on the complexity of the business and the purpose of the valuation. A straightforward indicative valuation for planning purposes costs considerably less than a formal, defensible valuation prepared for litigation or a contested transaction. We agree scope and fee upfront before starting any work.
What multiple of profit is my business worth?
Multiples vary widely by sector, typically ranging from around 2–3x maintainable earnings for smaller, owner-dependent businesses, up to considerably higher multiples for businesses with strong recurring revenue, low owner dependency and genuine growth. There is no universal answer without looking at your specific numbers.
Can I get a valuation without putting my business up for sale?
Yes. Valuations are commonly used for planning, shareholder agreements, succession planning and internal decision-making, entirely separate from an active sale process.
How long does a business valuation take?
A straightforward valuation can typically be turned around within a few weeks once financial information is provided, though more complex or contested valuations take longer.
Artema Limited provides business valuations for sale preparation, shareholder and matrimonial matters, and succession planning across Ringwood, Wimborne, Poole and Bournemouth. Contact Artema on 01425 470044 to discuss your requirements.