How to value a business

According to the latest Small Business Finance Markets report, in 2023, the flow of bank lending declined to around the levels seen in 2016, and equity investment into small businesses declined to levels last seen in 2020.

Finding funding isn’t always easy for UK based businesses. Whether you’re looking for investment, considering a sale, or just want to get a better understanding of your company’s financial health, conducting a comprehensive valuation of your business can go a long way in helping you achieve your funding goals.

What is business valuation?

A business valuation is an assessment that helps you determine the monetary value of your business. Essentially, it’s how you figure out how much your business or company is really worth. There’s a lot that goes into a business valuation, beyond just looking at what you turn over each year.

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Why should you calculate the value of your business?

Getting a proper business valuation done can help you secure funding, sell your business for the best possible price, and attract investors who share your vision. With it, you’re better equipped to demonstrate the true potential and value of your business to external stakeholders.

But more than that, understanding the value of your business can help you make smarter decisions, like deciding what’s next for your company – should you plan for acquisition down the line, or focus on organic growth and expansion? Are you more likely to secure funding from a VC company, or in the form of a loan from a bank or lender? A business valuation can help you get to grips with important decisions like these.

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How to value a business

Some businesses choose to value their company themselves, which has the positive attribute of being more cost effective and keeping you in the driving seat. However, many businesses choose to outsource the job to independent valuators. There’s no hard and fast rule that dictates which is better, the one you choose to go for will generally depend on your needs. 

For instance, if you’re trying to sell your business in the very short term, you may choose to go for an independent valuator, whereas if you’re trying to gather data to inform your decision making, you may choose to go for a DIY valuation. 

Whatever your choice, here are some of the methods for valuation you may encounter. Be aware, this is by no means an extensive list of valuations – your business is unique, and the exact form of valuation that will most suit you will depend on your goals, needs, and industry, but this is an easy to digest place to start. 

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Market capitalisation

This is where you take the current price of a single share and multiply it by the total number of shares your company has issued – this one is only relevant for publicly traded companies.

Entry valuation

What would it cost to start your business today, from scratch?

This valuation estimates the cost of recreating your entire business from the ground up and is designed to provide a snapshot of your business’s current value, not to offer support in future decision making. You calculate it by determining the total cost of starting your business anew, then subtract any potential cost savings.

Asset valuation

This method determines the value of everything you currently own as a business. That’s not as simple as gathering your receipts – instead, it involves a careful assessment of the current market value of all your assets, both physical and intangible.

That means the depreciated value of any purchased products, as well as the value of your brand, your relationships with your customers, and your reputation. This one is designed for asset heavy businesses.

Discounted cash flow

This method attempts to figure out your future cash flow, and then turns that into its present-day worth to determine the current value of your business. This method is particularly suitable for fast growing businesses, or businesses who predict they’ll make a lot of income in the future.

With this, you look at the cash flowing in and out of your business during a specific period – there are two things to remember here, number one, cash flows both in and out, so you could be earning plenty, and yet spending so much your cash flow could still be at risk. Number two, cash today is worth more than cash tomorrow, because cash today is in your hands, meaning you could use it to invest and grow and turn into more cash, whereas cash tomorrow is less tangible. 

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Find a business loan with Funding Options by Tide

We help eligible businesses find bridging loans, invoice finance, merchant cash advances, business vehicle leases, and a plethora of other funding solutions, ranging in loan amounts from £1,000 to £20M. Just click the link below and submit your details, including how much funding you’re looking for and the type of funding you need, and we’ll be in touch to let you know if you’re eligible for a loan from one of our 120+ lenders.

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Please note that the information above is not intended to be financial advice. You should seek independent financial advice before making any decisions about your financial future.

It’s important to remember that all loans and credit agreements come with risks. These risks include non-payment and late-payment of the agreed repayment plan, which could affect your business credit score and impact your ability to find future funding. Always read the terms and conditions of every loan or credit agreement before you proceed. Contact us for support if you ever face difficulties making your repayments.

Funding Options, now part of Tide, helps UK firms access business finance, working directly with businesses and their trusted advisors. Funding Options are a credit broker and do not provide loans directly. All finance and quotes are subject to status and income. Applicants must be aged 18 and over and terms and conditions apply. Guarantees and Indemnities may be required. Funding Options can introduce applicants to a number of providers based on the applicants' circumstances and creditworthiness. Funding Options will receive a commission or finder’s fee for effecting such finance introductions.