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BUSINESS VALUATION

An effective business valuation service can help you determine the true market value of your company. Excellent for anybody seeking to resolve a dispute, sell or buy a business, looking for investment, wanting to get a better understanding of their financial security, and much more.

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Key Forensic Accounting Skills in the Business Valuation Process

Any situation where a business valuation is seen to be necessary will likely be stressful for all parties. An experienced forensic accountant can utilise their expertise to provide a valuation, supported by detailed analysis and knowledge, to ensure that the process goes through as efficiently as possible. 

The role of a forensic accountant requires years of training and experience. As a result, they have been there and seen it all across a wide variety of different fields and sectors. Therefore, no matter the reason, if you are in need of an accurate business valuation, look no further than Inquesta. 

Your specialist forensic accountant can support you in a number of ways, and utilise their expertise to ensure that your valuation is done effectively.

However, just having the ability to track down data and assets is not enough. For a forensic accountant to be useful in a business valuation, they must also be able to provide you with an accurate valuation of assets associated with the company, hidden or otherwise — we have a particular focus on valuing shares and trade. 

The actual process behind valuing company shares can be difficult as there are often a considerable number of things to take into account. For example, in a matrimonial dispute you may need to consider that a company built by one party from the ground up would have more value to them than their partner who had no association.

Common Methods to Skew a Business Valuation

There are all manner of different reasons why one party involved in a dispute may deem it necessary to attempt to alter the results of a business valuation, to their benefit.

Methods a party may use to attempt to ensure an inaccurate business valuation includes, but is not limited to:

  • Consciously delaying company bonuses to team members or senior management until after the valuation has taken place.
  • Bringing such bonuses forward, ahead of schedule, to before the valuation.
  • Deliberately overpaying company taxes prior to the valuation, only to then claim it back afterwards
  • Overpaying for high value assets
  • Exaggerating a firm’s current liabilities
  • Gifting money or assets to friends/family

A skilled forensic accountant will have the knowhow to spot any and all of the above and ensure that your valuation is as accurate as possible.

Common Causes for Business Valuation in the UK

There are a large number of different reasons a business’ owner may wish to undergo an audit of their operation in order to come up with a company valuation, including:

  • Exit Strategy: If an owner has earmarked a sale in the future, then it is likely a good idea to get a baseline value in advance.
  • Shareholder/Partnership Disputes: If there is a conflict, and either side wants out of the relationship, an independent valuation will be necessary.
  • Mergers and Acquisitions: If a merger or acquisition is in your company’s future, valuation can help you to determine a fair price.
  • Divorce Settlement: Unless a prenuptial agreement is in place, any divorce will likely include the sharing of assets, including a company. As a result, fair market value must be established for a fair division of assets.

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If you need a professional to conduct a thorough business valuation, contact our expert team of forensic accountants today.

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Business Valuation Methods

When it comes to valuing your company, there are a variety of potential methods you can choose to use. From valuing business assets, looking around at other values in your industry, checking business earnings, and more, it’s important that you utilise the most appropriate methods for your business. Additionally, it is also possible, and often recommended, that you consider using multiple methods to gain the clearest understanding possible. 

Your business valuation expert could recommend any of the following common options, or any number of methods depending on your situation:

Asset Valuation Method

By incorporating an asset based approach to valuing your business, you are prioritising the value of the net assets you possess. The net asset value is calculated by subtracting your total liabilities from the sum total of your assets. 

A common method reserved for any companies where only the main asset has real value (property companies, non-trading businesses, etc.) The diversity of this method comes from determining which of the firm’s assets and liabilities should be included when undertaking the valuation, and how you are planning to measure how much they are all worth.

Future Earnings Method

Future earnings methodology is a way to calculate business value based primarily on the idea that the present value of your company should be, at least in part, based on its ability to generate earnings in the future — that the future value of the business should have some influence on its current value.

Factors taken into account when establishing a value based on future earnings include:

  • Current cash flow
  • Annual rates of return
  • Expected future earnings
  • Estimate future value

One of the more common ways to determine your business’ worth, the Future Earnings method bases company value around the question of ‘should the current value of your company not, in part, be determined by its future?’ Essentially, this method seeks to differentiate in value those companies set up for future successes, and those that may be headed for failure.

Figures utilised to find a value include the firm’s current cash flow, rate of return, expected future earnings, and sales forecasts.

This method is most useful for a company with a clearly evident history of earnings that is expected to continue with this positive trend. However, while ubiquitously popular, the Future Earnings Method is seen to be less useful for a business that:

  • Has a limited transaction history to act as a benchmark.
  • Operates based around an asset or service with what is perceived to be a limited ‘shelf life’.
  • Is expected to undergo a period of cash flow or future earnings difficulties.

Market Value Approach

Another commonly used valuation method, particularly by business owners operating in traditional or more popular industries. The Market Value method requires you to take a look outside of your company, at other similar businesses operating in your field.

Have any of these ‘similar businesses’ been sold in recent years? If so, you should take their selling price as a guide to how much yours could be worth.

One of the downsides to this method is the relative vagueness of it. It is impossible to get a totally accurate value using this method. However, it can give you an excellent idea.

Not all company owners should jump straight to utilising market data to value their company. It is only useful for broadly comparable businesses to use as examples.

Dividend Yield

Primarily used to value a minority stake in a company rather than the business as a whole, this method is based around the idea that, for a minority shareholder, their investment — and ultimately the value of the company to them in this instance — stems from their dividend.

To calculate a company’s Dividend Yield, you take the annual dividend per share amount and divide it by the price per share.

Download a Free Guide to Business Valuation 

Valuing a business is always going to be a complicated, highly complex process. This is made all the more difficult when it comes as part of a dispute.

Our FREE Business Valuation for Divorce Lawyers guide is designed to support you and ensure that a difficult situation can be resolved as amicably as possible. 

Additionally, when it comes to business valuation for shareholders disputes, there are a variety of possible routes to take, all with their own pros and cons. Our FREE booklet will guide you through the process, helping you pinpoint your best steps forward. 

VALUATION FOR DIVORCE
SHAREHOLDERS’ DISPUTE VALUATION

Our Specialist Team

Inquesta’s skilled team of forensic accountants are here to help you to value your business. Our experienced professionals know exactly what it takes to guide you towards an accurate valuation.

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Rob Miller

Director of Forensic Accounting

A co-founder of Inquesta, Rob Miller is a chartered accountant, a member of the Institute of Chartered Accountants in England and Wales (ICAEW), and a Practising Member of The Academy of Experts.

With decades of experience in providing specialist forensic accounting services, Rob has been instructed to assist with numerous cases — such as financial investigations, criminal defence and confiscation proceedings, commercial and contractual disputes, valuation matters, and much more besides. He has acted on behalf of claimants, defendants, and as a single joint expert.

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How Inquesta Can Help with Your Business Valuation

The role of a forensic accountant in a business valuation case can be vital. This expert accountant is able to, as accurately as possible, draw from their expertise in order to determine an actual number for how much your company is worth.

They can overcome any attempts to mislead and circumvent the search for truth and ensure that your valuation is done as stress-free as possible.

All companies are unique in their own ways. Therefore, the process to value each business will also greatly differ. The experience of a forensic accountant means that, no matter what, you can be secure in the knowledge that you are in safe hands.

A skilled forensic accountant can even take the data compiled in your business’ valuation and make recommendations to further increase profitability. The Inquesta team of expert forensic accountants are on hand and here to help.

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“Rob Miller is my first choice for forensic accountancy on criminal cases. He has an impressive eye for detail and adopts a ‘user-friendly’ approach to interaction with our clients and other professionals which ensures the smooth running of any task we instruct him to undertake.”

Jennifer Richardson, Solicitor-Advocate

FAQs

The process of valuing a business can vary greatly. This ambiguity comes as a result of the size of your company, the complexity of the process, etc. Generally, the time frame from initial consultation through to the final valuation can take anywhere from a couple of weeks up to a month or even more.

The cost of business valuation will ultimately depend on the size of your company and the level of complexity that comes with the case. For more information about how much a business valuation would cost, get in touch for a free consultation.

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