After the publication of the paper ‘Keeping it in the Family – SME Family Business Succession’ that has been very well received by the European Commission, FEE Member Bodies and EU organisations from the SME field, FEE is delighted to release the new paper ‘Business Valuation: a guide for Small and Medium Sized Enterprises’ which is more guidance to assist with the transfer of a Small and Medium Sized Enterprise.
This guide describes the significant overall principles to be applied in the valuation of enterprises, especially in the case of valuing an SME.
The demand for business valuations may be divided into principally two areas: requirements for statutory rules or contractual agreements. There may be other reasons, dependant on the proprietors’ needs.
Valuations for contractual reasons occur particularly when partners join or leave a partnership, in relation to inheritance disputes and settlements, as well as for settlements made in accordance with family law. Business valuations are often used for entrepreneurial initiatives such as the purchase or sale of businesses, mergers, additions to equity or third-party capital, contributions of non-monetary assets (including the transfer of entire net assets of businesses), initial public offerings, management buy-outs or in connection with value-oriented management concepts.
Business valuations are also carried out based on commercial and tax law valuation questions.
When calculating a business value of small and medium-size entities, particular attention should be paid to determining precisely what makes up the business being valued, determination of management remuneration as part of valuation of the management factor, and the reliability of sources of information.
This guide is structured in a way that general principles for valuing a business are outlined and that specific matters arising for SMEs are explicitly referred to in the context of the relevant general principles.