Valuation decides whether you sell, keep or restructure. Getting it wrong can cost real money. These are the six mistakes we see most.
1. Unrealistic expectations
Owners tend to see their business too optimistically, based on inflated cash flow or growth forecasts, little knowledge of valuation and little thought for what a buyer actually needs. Buyers make the opposite error, overestimating the savings from a merger and underestimating the cost of a change of ownership.
2. Not sharing information
The valuer needs full access. Provide detailed information and cooperate, even when it feels confidential. Valuers usually meet key staff, visit sites and ask follow-up questions. Hold-backs lead to a weaker, less defensible number.
3. Doing your own valuation
The method depends on the transaction, the type of company and the data available. Common errors are:
- mixing methods inconsistently
- using book value instead of fair market value
- unrealistic cash flow projections
- a method that does not suit the business
- ignoring sales trends
- overlooking whether the business can transition to new ownership
4. Expecting one fixed number
Valuation is not an exact science. A valuer will usually give a range. It reflects stand-alone value, and the final price depends on due diligence, financing, the buyer's strategy, how urgently you need to sell and how easily the business moves to new owners.
5. Expecting the value to stay the same
A valuation goes stale. Sales trends, market conditions and regulation all shift the value over time. This matters in family businesses, where a later rise in value can cause disputes over an earlier sale.
6. Using someone who is not a valuation specialist
Valuation involves many variables, and errors multiply without specialist experience. A good valuer follows new rules, court decisions and tax guidance, and knows about newer risks, such as cyber breaches, that affect value.
What to do
Gather clean, audited financials, define the purpose, use a qualified valuer, agree the method upfront and refresh the valuation when circumstances change.
Read more in rule-of-thumb business valuation methods, and see our audit services for financial statements that support the valuation.
Key takeaways
- Expect a range, not a single number.
- Share information fully with the valuer.
- Refresh the valuation when the market or your trading changes.
Frequently asked questions
Can I value my own business?
You can estimate, but a formal valuation for a sale, dispute or funding should be done by a qualified specialist.
How often should a business be valued?
Whenever there is a decision such as a sale, investment or dispute, and periodically otherwise.
Talk to a chartered accountant
Questions about your own situation? Reach us directly and we will reply with clear next steps.
This article is general information and not advice for your specific circumstances. Rules and thresholds change, so confirm the current position before you act.
