Formal Business Valuation Reports

1. Bottom line up front

A formal business valuation report is the written, signed, independent opinion of market value that satisfies a third-party audience. The audience might be HMRC reviewing an EMI option grant, a Family Court considering a financial remedy, an EOT trustee testing whether a proposed price sits at or below open market value, a lender underwriting an acquisition facility, or a shareholder challenging the price offered on a buyback. In every one of these scenarios an informal estimate or a broker's pitch number is the wrong instrument. Only a properly constructed formal report carries the methodology, evidence, and independence that the receiving audience requires.

The report itself typically runs **40 to 80 pages**, takes **three to six weeks** to produce from a complete data pack, and costs **£4,000 to £12,000** for a UK owner-managed business in the **£500k to £3m EBITDA** band. Court-facing reports and reports involving complex share class structures sit at the upper end of the range. The investment is trivial against the financial exposure in any of the seven scenarios where a formal report is required, and it is materially cheaper than the cost of attempting to defend an undocumented opinion in front of HMRC, a judge, or a trustee board.

This guide covers the seven scenarios that require a formal report, the contents of a defensible report, the basis-of-value distinctions that change the headline number, and the eighteen-month commissioning blueprint we use with private clients facing a regulated transaction.

2. The chartered surveyor's mortgage valuation analogy

When a high-street lender writes a mortgage against a residential property, the lender does not accept the agent's selling-price suggestion or the buyer's view of fair value. The lender requires a written valuation from a RICS-qualified surveyor, prepared to a defined methodology, with comparable evidence cited, conditions of the property recorded, and the surveyor's professional declaration attached. The reason is straightforward. The lender's exposure is real. If the valuation is wrong and the borrower defaults, the lender carries the loss. A signed, methodology-compliant valuation gives the lender something to rely on, and the surveyor's professional indemnity insurance gives them something to recover against if the valuation turns out to have been negligently prepared.

A formal business valuation report serves exactly the same function for HMRC, a court, an EOT trustee, or a lender financing an acquisition. The audience has real exposure if the number is wrong. HMRC carries lost tax. The court carries an unjust financial remedy. The trustee carries personal liability for a breach of duty. The lender carries impairment on the facility. Each of these audiences requires the same thing the mortgage lender requires from the surveyor: a methodology-compliant, evidence-cited, signed opinion from an independent professional whose work can be relied on and tested. The cost is modest. The cost of not having it, when something goes wrong, is not.

3. The seven scenarios and the commissioning blueprint

Below is the framework we use to determine whether a formal report is required, indicative, or somewhere in between. Each scenario carries a different basis of value, a different audience, and a different evidential standard.

The seven scenarios that require a formal report

The commissioning blueprint

• Weeks 1 to 2. Statement of instruction, basis of value confirmed, data pack request issued.
• Weeks 2 to 3. Data pack received, EBITDA normalisation, comparable transaction search.
• Weeks 3 to 4. Methodology applied (typically two or three methods), triangulation, sensitivity analysis.
• Weeks 4 to 5. Draft report issued for factual review by the commissioning party.
• Week 5 to 6. Final signed report issued, with valuer available for questions from HMRC, court, or trustees.

Anonymised case study

Drawing from our aggregate transaction data at BusinessValuation.co.uk, a Surrey professional services firm came to us shortly before granting EMI options to its senior leadership team. The directors had initially used an in-house spreadsheet to set the option strike price at **£2.40 per share**, derived from a single-method EBITDA multiple applied to the prior year's reported figures. We were instructed to produce a formal HMRC-compliant report. Normalisation lifted maintainable EBITDA by **£95,000** to **£640,000** (above-market director salary and one-off legal costs). Triangulation across the EBITDA multiple, capitalised earnings, and comparable transactions returned a market value range of **£3.2m to £3.6m**, with a midpoint of **£3.4m**. Applying the statutory minority discount of 35% for the non-controlling EMI parcel produced an unrestricted market value per share of **£2.87**. The formal report was submitted to HMRC SAV with full working disclosed and was accepted without amendment in four weeks. The corrected strike price preserved the option scheme's CGT treatment for the participating managers, who collectively realised **£480,000** of additional after-tax value on the subsequent exit eighteen months later, compared with what would have been available under the original under-evidenced figure.

4. How basis of value changes the headline number

The basis of value is the single most consequential decision in a formal report, and it is set by the audience and the purpose, not by the valuer. The same business can return defensibly different numbers under different bases, and using the wrong basis is the most common reason that reports are rejected or challenged.

Open market value is the price at which a controlling interest would change hands between a willing buyer and willing seller, both informed, neither under compulsion. It is the standard for sale planning and for most EOT transactions. The methodology emphasises the EBITDA multiple and comparable transactions because these reflect what real buyers are actually paying.

Fair market value is the HMRC standard, used for EMI options, share gifts, IHT, BADR claims, and share buyback clearances. It applies a hypothetical-purchaser test (assuming a notional buyer who would not necessarily exist in the real market) and statutory minority and marketability discounts for non-controlling parcels. A 25% holding in a private company will typically be valued at **35% to 50% below** its proportionate share of total enterprise value once the statutory discounts are applied. Reports that fail to apply these discounts are routinely rejected.

Fair value is the court standard used in shareholder dispute, divorce, and unfair prejudice proceedings. The defining feature is that the court will often exclude the minority discount where the departing shareholder did not choose to leave. In an unfair prejudice case the petitioning shareholder is typically valued at their proportionate share of enterprise value with no discount, on the basis that they should not be penalised for the conduct that forced their exit. The same 25% holding that would attract a 40% discount in an HMRC valuation might attract no discount at all in a Court of Chancery fair value determination. The difference can run into hundreds of thousands of pounds on a single transaction.

Investment value is the value to a specific buyer including their synergies. It is rarely the right basis for a formal report because it is buyer-specific and not transferable, but it appears in transaction work where a buyer is pricing a strategic premium and the seller wants to understand what is theoretically on the table.

A formal report that does not state the basis of value upfront, does not apply the correct statutory discounts for that basis, and does not show its working on the discount calculation, is a report that will be rejected or challenged. The methodology is not optional. The audience defines the basis, the basis defines the methodology, and the working must be disclosed so the audience can test it. That is the standard we hold every report to, and it is the standard the receiving audiences expect.