Retaining and motivating your team is crucial to growing a sustainable business. If you are lucky to find a gem or two who drive your business forward like it’s their own, you might be considering how you can bring them in to share some of the equity.
Why Consider a Business Valuation?
Many established companies reach a point where growth plateaus, or they seek new ways to reward long-standing team members. A comprehensive business valuation isn’t just for selling a company; it’s a powerful tool for internal strategic planning. It provides a clear snapshot of your company’s financial health and potential, helping leadership make informed decisions about future direction, investment, and employee engagement.
For example, a managing director might seek a valuation to:
- Address periods of stagnation and identify pathways to renewed growth.
- Incentivise key employees, fostering greater commitment and improving staff retention.
- Understand the tangible value of shares for potential internal distribution.
Our Approach to Valuation
Our valuation process goes beyond surface-level figures. We delve into the core operational performance of a business, often focusing on metrics like Earnings Before Interest, Tax, Depreciation, and Amortisation (EBITDA). This allows us to assess a company’s profitability independent of its capital structure or tax situation.
We also consider various multipliers, often derived from similar company sales, to provide a robust and indicative valuation. It’s important to remember that a valuation is a professional indication, and the ultimate value can also be influenced by external perceptions and market conditions.
The Strategic Advantage of Growth Shares
One of the most innovative ways to incentivise employees, as discussed in our recent internal session, is through growth shares. This mechanism allows businesses to reward their team members with company equity in a tax-efficient manner for the employee.
Here’s how they typically work:
- Hurdle Value: A “hurdle value” is set at the company’s current valuation per share.
- Future Growth: Employees only benefit from the increase in value above this hurdle. This means if the company’s value grows, the employees’ shares become valuable, directly aligning their efforts with the company’s success.
- Tax Efficiency: Crucially, because the shares are initially deemed to have no immediate value (as they only benefit from future growth), employees typically don’t incur an immediate tax liability upon receiving them. This avoids a common pitfall of traditional share gifting.
This approach not only motivates employees to actively contribute to increasing the company’s worth but also fosters a sense of shared ownership and long-term commitment. It’s a progressive way to spread wealth internally and build a stronger, more engaged team.
Partnering for Your Business’s Future
Understanding and implementing complex financial strategies like business valuations and growth share schemes requires expert guidance. At MAP, we are dedicated to helping businesses navigate these intricate areas, ensuring you have the insights and tools to achieve your growth objectives and build a thriving, incentivised workforce.
If you’re considering a business valuation or exploring employee incentive schemes, contact us today to discuss how we can support your journey.
