How to get the right valuation for your company

The controversial undervaluation of the Royal Mail last year cost British taxpayers over £750 million. It also severely dented the reputation of Business Secretary Vince Cable.

Cable valued shares in the 500-year-old national institution for 260-330 pence each, but their market value rose soon after purchase. At one point they even reached 615p, nearly double Cable’s pricing.

A report by the National Audit Office in April stated that while the Government achieved its primary objective, selling the Royal Mail, it could have attained a considerably better deal for taxpayers if they had not rushed into selling the shares at a cautious low price.

On the back of this, the importance of getting the right valuation for your company could not be clearer, especially if you are considering venture capital investment or selling on. Here are my five tips for getting the right valuation for your firm.

Research the likely asking price

Gather the sales prices of any similar businesses in your locality. This will give you a rough figure of what you could receive for your business. The more you find out, the better idea you will have, so aim to look through sales from the past year to take account of trends and changes. If you cannot find out the information yourself, politely ask your contacts if they can help you by sharing anything they may have on their own businesses. You would be surprised what you can find out by just asking.

Get your financial and legal records in order

It is a time-consuming task, but making sure that your finances and contractual arrangements are in order is vital if you want a fair valuation. In some cases it will add to the ultimate worth of the business. Comb through your account books and check that every outgoing has been noted. Things that are often forgotten include loan repayments and money allocated for flexible or part-time wages, so make sure you have covered them.

You should also speak to corporate finance specialists who will have a good idea of the type of multiples to apply for the purposes of valuing your business.

Know your assets

There are two types of assets to bear in mind – tangible and intangible.

Tangible assets, or hard assets, are physical items that the company owns. This includes all company infrastructure like buildings, furniture, technology and virtually anything you can touch that has a cash value. This is especially important if you are liquidating your company.

On the other hand, intangible assets are the invisible things that form part of your business’ value. These include your ‘brand value’, the size of and information about your client or customer bases, your industry knowledge, your reputation and your position within the market. It also includes expenses, operating costs, exclusivity rights such as copyrights or trademarks, ongoing contracts and any endorsements or attachments that you have (for example, if you are part of a franchise).

Consider the types of sale you may have

You need to be prepared for the different types of offer you may receive. Cash sales tend to have a lower figure than sales on credit or longer-term repayment. Make sure that if someone offers to pay you back over a period of time, they realise that paying a larger lump sum at the start of the deal will result in smaller monthly repayments and therefore a higher monthly net profit, and vice versa. 

Finally – make things easier for yourself and get the right advisors involved

Plan well in advance; rushing into deals is highly unadvisable, as displayed by the Royal Mail fiasco. Be realistic about your value and record each step you take towards working it out so that you have the calculations to share with potential buyers. If the task of valuating your business seems too difficult or you would rather hand it over to someone else, hire experts with relevant field knowledge and resources to get you the accurate figures you need.

If you engage the services of legal and financial experts, who’s day job is to deal with such matters, the process will prove much more controlled and cost effective. It may actually save you money rather than cost you in fees when you consider what such professionals add to the process.

Image: growth concept via Shutterstock


Hugh Hitchcock

Hugh Hitchcock is a director at DJM Solicitors, a commercial law firm providing legal services to clients across the UK and Los Angeles, Hong Kong and Japan. His career spans 23 years spent in media and corporate law, and he specialises in dispute resolution. He previously spent six years at a leading media firm that acted for Elton John and The Beatles' record label Apple.

About Hugh Hitchcock

Hugh Hitchcock is a director at DJM Solicitors, a commercial law firm providing legal services to clients across the UK and Los Angeles, Hong Kong and Japan. His career spans 23 years spent in media and corporate law, and he specialises in dispute resolution. He previously spent six years at a leading media firm that acted for Elton John and The Beatles' record label Apple.