How to Value a Company with a Business Valuation Report
Value a Business Accurately and Cost-Effectively
Find the Fair Market Value of Your Business, Whatever Your Reason or Audience
Table of contents
What is a company 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, consider getting a business valuation of your company so you can understand its market value. The enterprise value of your business is worth more than its book value or the assets minus the liabilities on your balance sheet.
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. A certified business valuation professional will analyze all parts of the company to determine the value of its parts and their sum- the market value of a company.
Besides the market value of 100% of your company, we will use this number to give you the company’s value per share or share price. You can understand what your business is worth.
The Business Valuation Process
Your small business is an economic engine. An engine where you must pay special attention to its true cash flow during the valuation process as we best determine the value of your business. A business valuation calculator will poorly represent the true value of your company and will not be seen as credible by banks, the courts, the IRS, and buyers.
If you own a small business, then our business value plan should work for your situation.
We pay special attention to your earnings before interest taxes and your cash flow analysis, as you can spend cash flow, but you can’t spend profits. In addition, your growth projections and how they drive the discounted cash flow analysis are paid special attention to as they give us your present value of those future cash flows or business worth.
We will use up to seven (7) different business valuation methods to get to your final fair market value or enterprise value.
What is a business valuation professional?
The work of a company valuation specialist is to determine the value of a business or company. Everyone at Business Appraisal FL|GA|HI 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.
Please read what is a business valuation report and see how we generate your business’s total value and stock price.
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 into 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 value your company based on its fair market value. We have done many valuations for estate planning and trust work.
What does a fair market valuation report of my business entail?
Although the reasons for getting a company 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 their team, assets, earnings, growth, cash flow, and losses within the context of their specific industry.
There are, however, a variety of methods that they may use to determine a company valuation or the value of your business. Want a sample business valuation to understand what your business is worth? Call us.
What methods can be used in a business valuation?
There are various business valuation methods and 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.
Business Valuation Methods We Use Include:
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 with our discounted cash flow analysis and the present value of their future cash flows.
To reach this conclusion of value, a company appraiser will consider the following:
- How much the business is worth today based on what it will earn in the future
- The investor’s expected rate of return
- How much equity the investor will get for their investment
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 market value. We will do a deep dive into your balance sheet.
Assets often analyzed are part of a buy-sell process —merchandise, inventory, equipment, sales, office supplies, intellectual property, brands, and goodwill.
There are instances where evaluating a business by an asset appraisal would be more efficient than using the discounted cash flow method, for example, when we need the liquidation value of a business.
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 company valuation with the discounted cash flow technique instead.
Business Comparable Approach
With this approach, appraisers analyze the financial worth of comparable recently sold businesses. This approach, however, may cause small business owners to make incorrect assumptions about their company’s worth by just looking at misleading comparables. For example, market cap size, net income, and growth prospects can lead to wildly different multiples of earnings for companies even in the same industry.
Please read our article on what is my business 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 not accurately assess the small accounting firm’s actual value. In many cases, size, market capitalization, the effectiveness of management, and ownership hierarchies may impact a company’s valuation and cause the book value and 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.
Income approach
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|HI will 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, including discounted cash flow DCF.
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 $2900 to $8900 depending on whether the fair market business valuation for the courts, IRS, SBA, banks, partnership buyout, or unsolicited offer to buy.
A Fair Market 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|HI, will help you determine what your company is worth so that you can engage in prospective transactions, launch succession planning, or bypass financial distress.
Your company value reports is so much more than a list of your company’s business assets and the free online business valuation calculators. You get what you pay for, and for a small business, we can value your business quickly, cost-effectively, and accurately.
As a business owner, we want you to understand the current economic value of your future profits and earnings to create a valuation report showing the market value of your company.