Find the Value of Your Business No Matter the Reason.
- What is a business valuation or business appraisal?
- What is a business valuation professional?
- When should I appraise my business?
- What does a valuation of my business entail?
- What methods can be used in a business valuation?
- How Much Does a Business Valuation Cost?
- Business Valuation Conclusion:
What is a business valuation or business appraisal?
Operating a business can be equally challenging and rewarding. For some, it represents the opportunity to create wealth. For others, it is a chance to create a legacy for generations to follow. Regardless of your reason for operating a business, it would be best if you considered getting a business valuation of the company.
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 to determine the value of its parts and their sum.
Your business is an economic engine. An engine where you must pay special attention on its true cash flow during the valuation process.
What is a business valuation professional?
The work of a business valuation specialist is to determine the value of a business or company. Everyone at Business Appraisal FL|GA is a Certified Valuation Analyst (CVA) or CPA. We produce a complete report on a business sale, litigation matters, divorce proceedings, or establishing partner ownership.
When should I appraise my business?
It is a great idea to seek this if you plan to sell a portion of, or your entire, company. This sort of feedback is also helpful if you plan to enter a merger and acquisition deal.
You may also benefit from it for tax reporting purposes. This is because tax returns often require companies to report cash flows. It will then be useful during a sale or the gifting of shares.
The Internal Revenue Service (IRS) requires that you must value your business a business based on its fair market value.
What does a valuation of my business entail?
Although the reasons for getting a business valuation may vary, appraisers’ approach to conducting such analysis tends to be standard. In general, they assess the financial health of a business. They do so by considering its team, assets, earnings, growth, and losses within the context of its specific industry.
There are, however, a variety of methods that they may use to determine a valuation.
What methods can be used in a business valuation?
There are various valuation approaches to measure the worth of any business. Each approach is based on varying financial facts and expectations that may result in a different valuation.
Discounted cash flow approach
This approach is ideal for individuals who want to buy a business. 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.
With this valuation method, a buyer can quickly determine their return on investment.
To reach this, an appraiser will consider: how much the business is worth today based on what it will earn in the future, the investor’s expected rate of return, and how much equity the investor will get for their investment.
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.
Assets often analyzed are part of a buy-sell process —merchandise, inventory, equipment, sales, office supplies, intellectual property, brands, and goodwill.
There are instances were evaluating a business by an asset appraisal would be more efficient than using the discounted cash flow method.
For example, an unprofitable restaurant with real estate valued at $1 million would benefit more from the asset-based valuation method. On the other hand, a tech startup that reports $300,000 in profit but with a few assets would have a greater valuation with the discounted cash flow technique instead.
With this approach, appraisers analyze the financial worth of comparable recently sold businesses.
This approach, however, may cause business owners to make incorrect assumptions about their company’s worth.
For example, a small accounting firm may believe that since a larger accounting firm like Deloitte is trading for twelve times last year’s earnings, their company is worth at least twelve times last year’s profit.
This would likely not accurately assess the small accounting firm’s actual value. In many cases, size, the effectiveness of management, and ownership hierarchies may impact a company’s valuation and cause the multiples of earnings of a small company to be a third to one-half of those in the same industry but of Fortune 1000 in size.
This approach attempts to determine the value of a business by calculating it in terms of how much revenue it will make moving forward. Additionally, this approach also considers the risk factors involved.
Regardless of the specific approach used, however, expert appraisers like those at BA FL|GA will likely prepare a statement of profits and profit/loss. As a business owner, you can use this document to determine the cost of future products, sales, and operating expenses.
See our detailed article on the different business valuation methods.
How Much Does a Business Valuation Cost?
We have a detailed article on what a business valuation costs; however, you can expect to spend from $3100 to $9900 depending on whether for the courts, IRS, banks, partnership buyout, or unsolicited offer to buy.
Business Valuation Conclusion:
Business valuations are a dynamic process that helps assess the actual value of companies. Competent and experienced valuators, like those at BA FL|GA, will help you determine what your company is worth so that you can engage in prospective transactions, launch succession planning, or bypass financial distress.
As a business owner, do you need help with your business valuation steps or what makes up business valuations? Please call or contact BA FL|GA.