How to value a company: what factors influence your valuation?

Valuations are fluid and depend on a range of factors, not least the situation and objectives of the potential buyer. If you’re considering your options for selling, financing or merging your business, you’ll need to understand how to value a company.
Download our guide How to Maximise Your Business’ Valuation to see the full list of value-driving factors.

Why get a valuation?

First, let’s look at why it’s important to do so, especially if you’re not looking to sell just yet. As well as being crucial to selling your business, a valuation helps with securing investment, growing or expanding your business, and gauging a fair price for shares.

How to value a company

The key drivers of value include your company’s growth and how secure its future revenues are likely to be. You’ll need a business plan with realistic projections, a robust risk management review and a clear picture of the opportunities you’re your business offers.
An investor or buyer for your business will, ultimately, assess the specifics of your business. However, some established industry or sectors practices will guide initial assessments. For example, software businesses are valued differently from manufacturing or consulting firms.

It also depends on the type of transaction. For a trade purchaser, there will be a focus on synergies such as customer base, capabilities and purchasing power. For an investor looking to establish a business in a strategically important sector, they may place a premium based on the cost of setting-up a company similar to yours with particular capabilities or intellectual property.

Running your business to maximise valuation

A valuation is a useful guide and a way to bring focus to your planning and actions. The value will be higher the more a buyer sees opportunities for upside in future. You need to focus on what a potential buyer can achieve by acquiring your business, and the earlier you have a clear picture of your potential buyers, the better. Who they are, what might they be looking for, how are they operating, what do you offer them?

When it comes to how to value your company, it’s a balancing act. You need to present the financials and metrics that gain attention, but you also need to have a strong business that offers a compelling opportunity to buyers.

Download our free guide How to Maximise Your Business’ Valuation for more information about how to create and communicate your valuation.
Brian Blakemore

Brian Blakemore

Chairman at Heligan Partners

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