What Goes Into a Business Valuation Report

Change the purpose and the number changes. That is not a flaw. It is how valuation works, and understanding it prevents most disappointment.

Why the purpose matters

A valuation for a shareholder exit, a court dispute, a bank facility and a sale to a strategic buyer can all produce different figures for the same business on the same day.

The buyer paying for your customer relationships values them. A court valuing your shares for a departing shareholder may not.

Tell the valuer why you need it. A report prepared for the wrong purpose is not usable.

The three methods

Asset based. What the business owns, less what it owes, adjusted to realistic values.

Suits asset-heavy businesses and liquidation scenarios. It usually undervalues a profitable service business, because the value is in the earnings and the people, not the balance sheet.

Income based. Value the future earnings. Either a multiple of maintainable earnings, or a discounted cash flow.

This is the most common method for a trading business. It depends entirely on the earnings figure being credible, which is where most of the work goes.

Market based. Compare to what similar businesses sold for.

Sound in principle, difficult in practice for UAE SMEs because private transaction data is scarce and rarely comparable.

Most reports use more than one and reconcile them.

The adjustments that decide the number

For an owner-managed business, the reported profit is almost never the maintainable profit. The valuer adjusts for:

Owner remuneration above or below a market rate for the role.
Personal costs run through the business.
One-off income or costs that will not recur.
Related party transactions not at arm's length.
Rent paid to an entity the owner also owns.

These adjustments frequently move the figure more than the choice of method does.

What a proper report contains

1. Purpose and intended user.
2. Valuation date.
3. Basis of value, and what that term means in this report.
4. Information relied on, and whether it was audited.
5. Methods used, and why.
6. The adjustments made to reported earnings, each explained.
7. Assumptions and limitations, stated plainly.
8. The conclusion, as a range more often than a single figure.

A report without the adjustments shown is not a report. It is a number.

Why audited accounts matter here

A valuation built on unaudited figures carries a discount, because the buyer's advisers will test the numbers and any surprise reduces the price or delays the deal.

Three years of clean audited accounts is the cheapest thing you can do to support a future valuation, and it has to be done years before you need it.

What increases the number, in advance

Reduce dependence on the owner. A business that cannot run without you is worth less to someone who is not you.

Reduce customer concentration.

Document what is currently informal. Contracts, related party arrangements, pricing.

Clean the balance sheet. Old receivables, director's accounts and obsolete stock all invite discount.

These take years, which is why the time to think about valuation is before you need one.

Where we fit

We prepare valuation reports and the adjusted earnings analysis behind them. Send three years of accounts and tell us the purpose.