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Information used in a business valuation
In order to value a business, your financial adviser or valuer will need to see at least 5 years (if possible) of financial statements. They may also need to visit the premises to check operations and the business's assets. They should also consider intangible assets, such as intellectual property, goodwill and the future outlook of the industry, and compare the business to similar businesses on the market.
A complete business valuation will answer the following questions:
Purpose of valuation
- Is the valuation for a buyer, seller, lender, investor or other reason (e.g. family estate plan)?
History of the business
- How long has the business been operating?
- How was the business started?
- Has the business changed its goals?
- What is the business's reputation?
- What is the condition of the facilities?
- What are the job descriptions of all staff?
- Are there any specialist skills required to run the business?
- Is the business reliant on a few people?
- What are employee pay rates?
- How is staff morale?
Legal and commercial information
- Is the business involved in any current or pending legal proceedings?
- Does the business comply with environmental and work health and safety laws?
- Does the business have any long-term commercial contracts? How long are these valid for and how much are they worth?
- Does the business have necessary licences, permits and registration?
- What lease arrangements does the business have?
- Is the business making a profit?
- Is there working capital or sufficient cash flow?
- How much of a loan can the cash flow support?
- What has the annual turnover been for the past few years?
- Have the turnover and profit been increasing, decreasing or remaining the same?
- What tangible assets, such as machinery, buildings and equipment, does the business have?
- What is the market value of these assets in their present condition?
- What liabilities, such as unpaid accounts, mortgages, does the business have?
- Does the business have enough working capital to pay shareholder dividends?
- What is the book value — rather than the retail selling price — of the stock?
- What proportion of the stock is obsolete or unsellable?
Goodwill or other intangible assets
- Is there goodwill attached to the business? If so, can it be transferred to a new owner?
- Are other intangible assets, such as intellectual property, for sale?
Market information and industry conditions
- What is the short-term and long-term industry outlook?
- Will specific economic factors directly affect the business?
- Is this market growing, steady or shrinking?
- Who are the business's competitors?
- Are there any barriers to entry?
- What market share does the business have?
- What is the market price of similar businesses?
- What competitive advantages does the business have?
- What will be the impact, if any, of the departure of the current owners/managers?