How Do I Value My Company Shares for Shareholder Protection Insurance?

I want to ensure my family are able to realise the value of my share in our business should the worst happen. I’ve therefore been looking at Shareholder Protection Insurance. However, I need to know how I can ensure my valuation is suitable?

Question asked by Gurbaag Chadda

For businesses with more than one shareholder, people often choose to protect their shareholding, as well as the shareholdings of their fellow partner(s), with Shareholder Protection Insurance.

This protection is not just for the business. It also offers financial help to the family of a deceased shareholder who inherits the shares in the business after their loved one passes away.

How Do I Value Company Shares for Shareholder Protection?

There are various methodologies to valuing a business depending on its type and size.

We often work in consultation with your accountant to place a suitable value on your business and your shareholding.

One of the most commonly accepted methods of valuation is applying a multiple of net profit of the company. You then base your Shareholder Insurance on your proportion of the total shareholding you own.

However, there are also other ways to value a business depending on its size and the number of shareholders. For example, an adviser may examine:

  • Cashflow.
  • Profits (whether they’re static or growing).
  • Multiples of net profit plus cash in bank and assets (however, this is tricky for startups and newer companies).
  • Intangible factors will also play a part, such as the company’s reputation and relationship with clients.

However, this isn’t a strict set of guidance. Every company is different and the value of two companies, even within the same industry with similar metrics, can be very different.

If you’re unsure about the value of your business, we’ll work with you to find the most appropriate metric to use.

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