5 Apr 2019
Despite what some may think, it is impossible to value a company (properly) solely based on the published accounts.
Yes, we have an online resource, in Companies House, but that gives us much less information than it used to, due to changes in accounting standards and filing requirements for private limited companies.
These changes have affected all companies, but the impact is seen the most in small companies, and micro entities. Broadly speaking that is companies with a turnover of less than £10.2 million per annum, so not that small!
It is not uncommon now to see annual accounts of just 2 pages filed at Companies House!
Luckily for the accountancy profession we are not paid by the page.
Therefore, we have to ask questions because without further details and explanations, we are unable to give a robust opinion on the value of a company.
Our valuations, unless otherwise prescribed, are carried out assuming a willing buyer / willing seller. Furthermore, one of the overriding assumptions is that the full financial information regarding the company to be valued, would be made available to the willing buyer via the due diligence process. Therefore, in order to carry out a valuation, the expert valuer should see, and review, the same information as a willing buyer would request.
When carrying out a valuation, for whatever purpose, our first request is to obtain both financial and non-financial information in respect of the company, including the company’s FULL financial statements. We use a standard document request for valuations which assists the process of disclosure.
The accounts are obviously important when valuing a business, but a valuation should not be concluded using the accounts alone. It is also important to understand the story behind the numbers, “getting under the skin” of the company and understanding what drives the numbers, the background to, and future plans of the company. All of these, taken together, inform the valuation.
After the initial analysis of information has been completed, further questions inevitably follow. Changes in accounting standards have added to this issue as financial statements may not contain sufficient information, as they did in previous years, potentially masking economic, market sector and operational changes. Without knowing the effect of those regulatory and legislative changes, the underlying economic, sector and operational changes may not be identified and the correct questions may not be asked.
So, that’s why we ask so many questions and if you would like to see our standard document request, send us an email and we’ll send you a copy.
If you have cases that would benefit from expert accountancy and valuation advice, or wish to arrange a seminar for your team to gain a further understanding into the presentation of accounts, please contact Leigh Dudley, on 0121 711 2468 or firstname.lastname@example.org. to discuss further.
A valuation should not be concluded using the accounts alone. It is also important to understand the story behind the numbers, getting under the skin of the company and understanding what drives the numbers, the background to, and future plans of the company. All of these, taken together, inform the valuation"