How much is my business worth? How do I value my business?

A question I have been asked many times is how much is my business worth? 

Or more commonly I think my / their business is worth this much ... and I ask for how they arrived at the value.  

Typically they've either asked an accountant - who has applied a magic formula, typically one that they know HMRC will accept when the valuation is theoretical for tax purposes.  Or they've asked a friend!

Both are not unreasonable ways of getting a valustion.

Because there is NO theoretically correct answer other than what an unhelpful economist would answer 'it's what a willing buyer will pay a willing seller'. But i'm being unfair on the economist because  that is probably the most accurate answer you can get.  It's just not very helpful because most people are actually looking for a number, not a theory.

So the bottom line is that the answer is not easy.  There are many potential considerations and many advisors make it seem something only a qualified professional can understand.

They also make it sound like a question to which there is defined answer – which only they can determine through some magic ‘black art’ process.

Neither is true. There is no single correct value for a business.  The value will be different for different people and determining a valuation appropriate for a given situation is a judgement based on a range of influences including the reason the valuation is needed.

The principles behind a valuation are though quite simple. 

In this video I explain them them step-by-step – in a fair amount of detail admittedly, but it IS an important topic. So why not invest 30 minutes of your time to understand such a business and life-critical decision – and be able to deal knowledgeably with the professionals.