Valuing a Business

1. Why Value the Business?

There are four main reasons for valuing a business.

1.1 To help you buy or sell a business.

Understanding the valuation process can help you to:

There is a better chance of a sale being completed if both the buyer and seller start with realistic expectations.

• Improve the business' real or perceived value.
• Choose a good time to buy or sell.
• Negotiate better terms.
• Complete a purchase more quickly.

1.2 To raise equity capital.

• A valuation can help you agree a price for the new shares being issued.

1.3 To create an internal market for shares.

• A valuation can help you to buy and sell shares in a business at a fair price.

1.4 To motivate management. Regular valuation is a good discipline. It can:

• Provide a measurement for management performance.
• Focus management on important issues.
• Expose areas of the business which need to be changed.