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In the world of business, knowledge is key. No successful company has ever done it without their fair share of due diligence and hard work.
Business valuation reports represent the end point of a highly involved, complex, and meticulous process. It will entail every aspect of your entire operation being laid bare and going over with a fine-toothed comb.
While a valuation report may appear daunting initially, its contents are hugely important, and should be seen as the key to the future, key to you making much more informed decisions in the years to come.
At Inquesta, we understand the significance of getting to grips with these documents, as well as the difficulties many often find attempting to do so.
This blog aims to guide you through business valuation reports, what one is, what you should keep an eye out for, and much more besides.
What is a Business Valuation Report?
A business valuation report is the culmination of your company’s valuation, the final report indicating how your valuation was conducted, and what was done to reach its final conclusion. This documentation may seem inaccessible for those not well-versed, but it is vital that you understand and are comfortable with its contents.
Your report will condense down the process behind assigning an economic value to your business, including all assets, intellectual property, etc. This is vital because the business valuation process contains a great deal of moving parts and complexities that can easily be missed.
A selection of the things that your business valuation report will likely contain include:
- Initial Business Assessment: It’s important to identify the intended purpose of the report, as well as outline details regarding both the company and the interested party overseeing the valuation.
- Operational Overview: The expert conducting the valuation should include initial findings as to the operation itself: the nature of the company, including its strengths and weaknesses, threats that could impact the valuation, and any opportunities that could present themselves in the future. It is vital for the valuer to understand the business they are assessing.
- Trends Spotted: External factors that have a knock-on effect to cash flow can have an impact on a company’s worth. The expert should make it clear that they understand the relevant business’ environment and the risks attached.
- Appraisal of Value: Your business valuation report should include a write up of what financial data the valuer found. This should include which methods they prioritised, and how this all came together to the final valuation amount.
From succession planning to preparing your estate, looking to sell on to looking at your next steps, you should expect a business valuation report if you pursue a business valuation, regardless of the who, what, where, when, and why.
An inability to understand your business valuation report will mean an inability to confidently understand and even accept your company’s valuation.
Things To Look For in a Business Valuation Report
When you’re looking over and reviewing these findings, there are a number of key aspects and considerations that you should keep an eye on throughout the process. From the introduction right through to the final valuation conclusion, it’s important to be as thorough as possible to ensure maximum accuracy and reliability.
Things you should be keeping an eye out for in your business valuation report include:
A Detailed Introduction
The introduction will generally contain a brief overview of the company itself, what it does, where it is located, how it is structured, the reason behind the valuation, who requested it, etc.
It’s important at this stage for the aim of the value to be outlined, whether it’s seeking to ascertain the assets value on the open market, to a specific investor, for a next of kin, etc
The report should also list all documents that are to be used for the assessment. You should, as a decision maker, make sure that you have copies of every single document highlighted in the report and cross reference them wherever possible to ensure total accuracy.
Clear Economic Assessments
Depending on which method is used, your valuation may contain considerations to the economy at the time, both on a national and local level.
The national economy can have significant bearings on the success of a business, particularly during times of financial uncertainty. Similarly, the regional economic status will outline exactly what the market is looking like for the business in question at the time of the report.
Data that may be utilised at this stage include:
- Local traffic patterns
- Distributions of income
- Population statistics
- Data showing similar businesses in the area
The valuer should provide a clear overview of exactly how this data was gathered and where from, as well as what impact they have on the business’s value.
Accurate Financial Analysis
If you want your business valuation report to be as accurate and thorough as possible in the long-run, then it is imperative that you scrutinise the financial analysis contained within the report to the best of your abilities.
Mistakes can happen from time to time. These mistakes are only dangerous when they are accepted as fact without double-checking. Bad maths can lead to an owner planning for the future based on dodgy information.
Additionally, if the report includes any form of projections, then you should ensure these are all realistic assumptions are based on and supported by tangible evidence.
Your business valuation report may contain a section dedicated to the risks and uncertainties surrounding the company in question. These can be internal risks (management changes or significant unexpected staff turnover) or external (changes to the market, economic issues in the UK, etc.)
You will want to be familiar with this section, to maximise your chance of a solid foundation moving forwards.
Are You Likely to Need an Independent Expert?
If you have had a business valuation report done, and there are any doubts or concerns present regarding its findings, accuracy, or reliability, there are options open to you.
Should you wish, you can consider contacting another valuation professional who can offer a secondary opinion. Their fresh perspective can bring increased clarity and peace of mind that the report is totally accurate and done as well as can be.
Support You Can Trust to Help Get You Through
When it comes to valuing your company, the ability to interpret and understand a business validation report holds huge levels of significance.
The Inquesta team of forensic accountants recognise the importance that comes with not only understanding the subtle nuances of a business valuation report, but in contacting an expert to have one done in the first place.
Our team have decades of experience in a wide variety of forensic accounting specialisms, from supporting you with commercial dispute resolutions to supporting the victims of financial fraud, we are on hand to offer support you can rely on
For more information about business valuation reports, the significance company valuation can have during difficult divorce and matrimonial/shareholder disputes, or to learn more about our varied service, get in touch today.