Company Valuation: What’s Its Real Purpose?

There are nearly 214 million companies worldwide. While many of them occupy offices and entire buildings, half of them have had rather modest beginnings. More than 50% of small companies are home-launched, meaning they are born and grown out of someone’s spare room or garage.

When you start a business, you naturally want to grow it. However, sometimes business owners hit walls and can’t figure out why. It is at this point they may consider getting a company valuation. But what exactly are company valuations? Why would you need one? Do you really need it?

All these questions will be answered in this post.

Types of Company Valuations

A company valuation will audit the accuracy and validity of financial records and accounts to ensure everything’s up-to-date and in order. The word audit comes from the Latin word “audire” which means “to hear”.  

The health of your business records reflects the health of your very business – its past, present, and future – which is why it’s important to have them in good shape. An auditor’s job is to ensure that your financial statements are synched with the real financial position of your business.

There are two types of business valuations:

  • Internal Valuations: Internal valuation involves reviewing and analysing a company’s operations. It’s done by a team of internal auditors, usually appointed by the company’s management.
  • External Valuations: Hiring an independent external auditor is a great way to give your business the credibility and trustworthiness it needs. External auditors review financial statements you have prepared and provide an opinion on the accuracy and reliability of said statements.

Independent auditors are engaged to render an opinion on whether a company’s financial statements are presented fairly following the applicable financial reporting framework.

To form an objective opinion, auditors will gather all of the evidence they need until they get a reasonable assurance. The opinion an auditor forms is free of any bias and outside influences.

What Auditors Do

In the United Kingdom, all companies must keep accurate accounting records and file their accounts with the Registrar of Companies. Auditors ensure these records and accounts comply with local financial reporting standards and regulations.

To achieve this, the auditor will go through the ledgers, statements, and reports to verify the integrity of financial information. They will also check whether income tax, VAT and other taxes have been properly paid.

Auditors can detect fraud within a company’s finances and uncover potentially problematic areas that need improvement or reworking.

What Auditors Don’t Do

To get a clear picture of external business auditors, you need to understand what to expect and what not to expect.

Auditors can’t take any responsibility for the financial statements they report – they provide their opinion. In fact, they can’t even guarantee that the financial statements are 100% accurate because they don’t have access to all of your data.

They also don’t provide a legal opinion either – but can point out any potential frauds or areas of mismanagement. In some cases, auditors might even recommend appointing a forensic accountant to investigate suspicious activity.

How Can You Make Use of a Company Valuation?

Verifying your business’s material information is just a piece of the puzzle. Valuations can give you more insight into how your business is performing. For example, a company-wide valuation of the accounts may identify areas in which money can be saved or inefficiencies that could be improved. It could also uncover opportunities for increased profits and growth.

A company valuation will also help you:

  • Make your business operations more transparent among your workers and help drive accountability
  • Focus on key areas that need improvement, encourage growth, and help simplify business operations
  • Spot any potential mismanagement in the workplace, and help you stay in control of your finances
  • Provide independent assurance and reassurance about your business’s financial integrity
  • Determine whether you need to make any changes or improvements, allowing you to take proactive steps to maintain profitability

Do You Need a Company Valuation?

Company valuations are important for the long-term health of any company, regardless of its size. They offer benefits such as improved financial control, transparency and a professional opinion of the company’s health.

If you’re not completely sure whether your organization needs a company valuation, remember the long-term advantages it can bring. Luckily for you, the Boardroom Advisors team can help you with Audited Business Valuations

Our fully qualified Chartered Accountants can provide you with a comprehensive valuation report tailored to your organization’s needs, offering the highest level of financial assurance and an accurate depiction of your business’ performance.

Make sure to contact us today for a company valuation!

Written by: John Courtney

John is highly ranked in the Top 100 UK Entrepreneurs list by City AM and is winner of the Lifetime Achievement Award from techSPARK. He has been a Board Director himself for over 40 years and first started placing Non-Executive Directors over 25 years ago. John founded and ran seven of his own businesses including a Management Consultancy for 10 years, a Corporate Finance offering for 10 years and a mid-sized Digital Agency for another 10 years.