Going concern valuation explained, and why hospitality lives by it
A going concern valuation values a business as a living, trading whole, not as bricks or bits to be sold off. This guide defines it, shows how it differs from market and liquidation value, and explains why every hospitality loan turns on it.
A going concern valuation values a trading business as an operating whole, on the assumption it will keep trading, combining the property, the fixtures and the goodwill into a single value. For hospitality it is the standard basis, because a hotel, pub or guest house earns its value as a functioning business, so a valuer establishes the fair maintainable trade a competent operator could sustain and capitalises the resulting profit at a market yield. It differs from market value, which can assume vacant possession, and from liquidation value, which assumes the business stops and the parts are sold. The difference between the going-concern value and the bricks-and-mortar value is goodwill. Lenders lend against the going-concern value. We arrange the finance; we do not lend.
At a glance
- What it isValue as a trading whole, still operating
- AssumesThe business keeps trading
- Built fromFair maintainable trade and profit
- IncludesProperty, fixtures and goodwill
- Versus liquidationWhich assumes the business stops
- GoodwillGoing concern less bricks and mortar
What a going concern valuation means
A going concern is a business assumed to keep trading for the foreseeable future. A going concern valuation therefore values the business as a living, operating whole: the property, the fixtures and fittings, and the goodwill of an established trade, all in one figure. It is the opposite of valuing the parts separately, and it is the natural way to value a trading hospitality asset, where the building only has its value because of the business running inside it.
This is the basis specialist lenders use for hospitality, and it is why the finance we arrange is sized against the going-concern value. Hospitality Property Finance is not authorised by the FCA, and the commercial lending we arrange is unregulated. The going-concern method underpins the hotel and pub valuations at /guides/hotel-valuation-guide/ and the fair maintainable trade concept at /guides/fair-maintainable-trade-explained/.
How the value is built
A going-concern valuation of a trading property is built by the profits method. The valuer establishes the fair maintainable trade, the sustainable revenue a reasonably efficient operator could achieve, deducts the maintainable operating costs to reach the fair maintainable operating profit, then capitalises that profit at a market yield to reach the value. The result is the value of the business as a going concern, including the goodwill that comes from an established, profitable trade. A lower yield produces a higher value for the same profit.
The most misunderstood point is that a going-concern valuation is not simply the current owner's takings capitalised. It uses fair maintainable trade, the level a competent operator could sustain, which can be higher than a tired operation's actual trade or lower than an exceptional one's. That is why a good buyer can find value a seller has not realised, and why the valuation, not the sale particulars, sets what a lender will fund.
Going concern versus market and liquidation value
Three values often get confused, and the differences matter for financing. Going-concern value assumes the business keeps trading. Market value, in a trade-related context, may be assessed with the trade in place or, as a separate figure, on a vacant-possession or bricks-and-mortar basis assuming the trade has gone. Liquidation value assumes the business stops and the assets are sold, usually quickly and at a discount, so it is the lowest of the three. Lenders look at the going-concern value to size the loan and the lower bricks-and-mortar figure to understand their downside.
| Basis | Assumption | Typical level |
|---|---|---|
| Going concern | Business keeps trading, goodwill intact | Highest |
| Bricks and mortar | Building without the trade | Lower |
| Vacant possession | Empty, ready for a new operator | Lower still |
| Liquidation | Business stops, assets sold quickly | Lowest |
Goodwill, and why lenders discount it
The difference between the going-concern value and the bricks-and-mortar value is goodwill: the extra worth that comes from an established, profitable, trading business. Goodwill is real value, but it is fragile, because it depends on the business continuing to trade well and can fall quickly if the trade falls. Lenders therefore treat it cautiously, lending against a proportion of the going-concern value and leaning on the bricks-and-mortar figure for their downside, which is why a trading hospitality asset with a large goodwill component needs a larger deposit. That link is explained at /guides/commercial-mortgage-deposit-requirements/.
How the going-concern value shapes your finance
The going-concern valuation is the number your loan is sized against, so getting the trade presented well is one of the most valuable things you can do. We build the case to support a fair maintainable trade a valuer will accept, size the finance against the going-concern value and the profit it produces, and place it with a lender who understands trade-related property. We are an arranger, not a lender. Start at /services/commercial-mortgages/, or see the buying guides at /guides/how-to-buy-a-hotel/ and /guides/how-to-buy-a-pub/.
Going concern valuation explained, and why hospitality lives by it: common questions
What is a going concern valuation?
It is the valuation of a business as an operating whole, on the assumption it keeps trading, combining the property, fixtures and goodwill into one figure. For a trading hospitality asset it is built by the profits method: establishing fair maintainable trade, deriving the fair maintainable operating profit, and capitalising it at a market yield. It is the basis lenders use to size a hospitality loan.
What is the going concern valuation approach?
It is the approach that values a trading business as a living operation rather than as separate assets to be sold. For trade-related property it uses the profits method, working from sustainable trade to a value via the operating profit and a market yield. It contrasts with valuing the bricks and mortar alone or breaking the business up at liquidation value.
What is the difference between goodwill and going concern value?
Going-concern value is the whole trading business, property plus fixtures plus goodwill. Goodwill is just one component: the extra value above the bricks and mortar that comes from an established, profitable trade. In other words, goodwill is the going-concern value minus the bricks-and-mortar value, and lenders discount it because it can fall if the trade falls.
What is the difference between going concern and liquidation value?
Going-concern value assumes the business keeps trading, so it captures the goodwill and is the highest figure. Liquidation value assumes the business stops and the assets are sold, usually quickly and at a discount, so it is the lowest. Lenders size a loan on the going-concern value but keep an eye on the lower figures to understand what they could recover if trading stopped.
How is going concern value calculated in real estate?
For a trade-related property it is calculated by the profits method: establish the fair maintainable trade, deduct maintainable operating costs to reach the fair maintainable operating profit, and capitalise that profit at a market yield to reach the value. This is the same basis used for hotels, pubs and guest houses, and it is what a specialist lender funds against.
Why do lenders use going concern value for hospitality?
Because a hotel, pub or guest house earns its value as a functioning business, not as an empty building, so valuing it as a going concern reflects what it is really worth. Lenders then lend against a proportion of that value, discounting the goodwill element, which is why hospitality deposits are higher than on a simple let investment. See /guides/commercial-mortgage-deposit-requirements/.
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