Everything to Know about a Company Valuation Report.
- Everything to Know about a Company Valuation Report.
- Why do you Need a Business Valuation Report?
Why do you Need a Business Valuation Report?
A business valuation, or business appraisal, is the process that determines the current economic worth of a business. To complete the valuation, you will need the help of an accredited business appraiser. They will analyze all parts of the company. Doing so will help determine the value of its components and their sum during the valuation process. This work will be in a business valuation report.
An essential part of the valuation is creating a business valuation report. This document assesses and reflects the true value of a company or its group of assets.
This report is all-encompassing of the enterprise’s true value. In other words, the document offers an analysis of the company’s financial data and insight into the industry and comparable companies.
But first, what does a valuation of my business entail?
Although the reasons for obtaining a business valuation may vary, appraisers’ approach to conducting such analysis tends to be standard. In general, the appraiser assesses the financial health of a business by considering many elements. Such elements include the company’s team, assets, earnings, growth, and losses within the context of its specific industry.
There are, however, a variety of methods that an appraiser may use to determine a valuation.
What methods are used in a business valuation?
Each approach is based on varying financial facts and expectations that may result in a different valuation.
- Discounted cash flow approach: This approach is reliable for individuals who want to buy a business. That is because this method emphasizes sales and profit trends that impact a company’s value. This method reflects the amount of capital expected by the investor to reach the market in a few years.
- Assets-based approach: The assets-based approach is the most common way for appraisers to value a company. This is because a company has a variety of tangible and intangible assets that add to its value.
- Comparables approach: With this approach, appraisers analyze the financial worth of similar companies and recently sold businesses in the same geographic area.
- Income approach: This approach attempts to quantify a business’s value by calculating how much revenue the enterprise will make moving forward. Additionally, it also considers the risk factors involved.
What does a company valuation report include?
A business valuation report prepared by expert appraisers like those at BA F|G is comprehensive, detailed, and all-encompassing of the factors that most impact your company’s value.
The report will provide the explanation behind why and how the valuator produced your enterprise’s economic value. This is an essential aspect of the report because soliciting a free valuation, for example, from an online business valuation source, may provide inaccurate values that fail to provide impartiality and depth when determining the business’s actual value.
However, for those that work with experts, a business valuation report may need to be more manageable to understand.
Here are five things you should look for in the report that will help you best contextualize your company’s value.
- Appraisal summary: This part of the document will likely be a table that summarizes the final valuation reached by your company. The table is usually at the back of the report and includes your company’s values and the various methods used to determine such values.
- Summary of approaches and value indications: This summary is highly beneficial to you as the company owner because it will give insight into the various methods used by the valuator. Often, there is an explanation that elaborates on why the valuation uses a particular method over another. Understanding this section will allow you to make sense of the high and low values used to reach the final valuation.
- Normalizing adjustments: These are meant to remove items in the financial statements that are unlikely to occur in the future or are not entirely related to the company’s operations. Examples of events that the valuator might adjust include a sizeable one-time expense associated with a natural disaster that impacted your enterprise.
- Discount rate summary: This summary is helpful to review if your evaluator used the Discounted Cash Flow method to determine your company’s value.
- Business validation summary: The total value reflected in the summary often includes any factors the appraiser felt added to or reduced the company’s value. For example, assets and liabilities are usually listed here, which may impact how your enterprise compares to others on the market.
Company Valuation Report Conclusion:
Many factors contribute to the value of a business, and such factors will be summarized in a valuation report. Working with expert appraisers like those at BA F|G, thus, guarantees that you’ll walk away with a great understanding of the valuation reached.
The BA F|G valuation reports can help you make sense of the many factors that impact your company’s value. Whether you are pondering a prospective business transaction, launching into succession planning, or encountering financial distress, our team effectively assimilates the information, makes the tough calls, and renders a robust valuation to help you reach your objective.
Would you like an example business valuation with pricing for your company? Please get in touch with BA F|G.