The information that a good business valuation includes is important.
What is Included in a Business Valuation?
Understanding your business’ market value is essential. And there is much more to your business than the simple numbers found in your book value. A professional business valuation, or business appraisal, will demonstrate your business’ true worth. It does this by looking past these raw business assets and incorporating all your company’s relevant factors and nuances.
Business valuations empower you to be in control of your financial situation. Thus, we recommend that you start this process early by taking a proactive approach instead of a reactive approach. That way, you can remain well-prepared for any potential offers or unexpected changes to arise. When you hold a strong understanding of your business’s value now, you can further understand the opportunities you are able to achieve and be ready for anything.
When Does Your Business Need a Valuation?
There is no one catch-all for when your business needs a business valuation. Moreover, there are several scenarios where knowing your true market value is essential. Being ready to sell, planning to finance, entering a merger and acquisition deal, reporting taxes, working with divorce proceedings, estate planning, taking on a partner, insurance purposes, looking for investors, and more, are all situations in which a business valuation will provide what you need to navigate these scenarios successfully.
You may also be looking to settle ownership disputes or bring in a third party. A company’s buyers and sellers may need to get on the same page. Or perhaps you need to know your intellectual property or intangible assets value.
Read our article the different methods used to value a small business to understand how your small business can have its most valuable asset assessed: your company’s worth.
Professional Business Valuations vs Free Online Calculators
Many who are seeking a business valuation come across free online business valuation calculators and wonder about their validity against true professional valuations. However, these online calculators are not as helpful as they seem. Not to mention, using these free tools can create several problems, rarely producing an accurate value.
A single business owner filling out these tools may overestimate the value of their assets or estimate values they may be unsure of. This may result in overinflated or inaccurate valuations. The IRS, banks, and courts will also not consider your valuation credible if you get it via an online tool.
The accredited team members at Business Appraisal FL|GA|HI will analyze your company’s worth with the utmost strategy and expertise. We employ in-depth techniques to determine your company’s true market value. As a complex process involving many considerations, calculations, and studies, our services go above and beyond anything an online calculator could provide. With us, you will be able to enjoy the full benefits of getting a legitimate business valuation.
Also, read our guide on how to value a business.
What Documents Are Needed for a Business Valuation?
A Business Valuation is an in-depth process. Thus, we will need a lot of paperwork, data, and financial information to assess your business accurately.
- Your current capital structure
- Your financial statements over the last three years
- Tax returns from the last three years
- The current year-to-date financial statements
- The profit and loss summaries from the last three years (quarterly if available)
A valuation will essentially assess the financial health of your business. And by considering these factors within your specific sector, we can paint the full picture of your company’s true worth.
Also, understand how much a business valuation should cost.
What Methods are Used for Business Valuations?
No one business is the same, and every business presents a unique set of elements. Because of this, there is no one valuation method that is used for every business. Therefore, the most appropriate method will vary based on individual scenarios.
Discounted cash flow approach
This approach is well-suited to buying or selling a business. By emphasizing sales and profit trends during analysis, this method will reflect the amount of capital expected to reach the market in the next few years.
When analyzing value through this method, a business appraiser will consider the worth of the business based on what it will earn in the future, the investor’s expected rate of return, and how much equity the investor will receive for their investment.
Running a business in Florida or Georgia? Read our article about why now is the time to get a business valuation in Florida or Georgia.
Business comparable approach
The business comparable, or market approach, involves analyzing comparable company selling prices and using this data to estimate what your business is worth. Similar to how homes are often valued, this method is driven by competition.
With this method, it is especially important to ensure that the businesses being compared are of similar value and standing as the business at hand. Comparing to businesses that are of significantly larger or smaller value will result in an inaccurate assessment. The expert business appraisers at Business Appraisal Florida will always use the market values of the most relevant competitors and the most similar businesses, avoiding this potential issue and only producing the most accurate value.
Know what counts as an add-back with understanding add-backs when selling a business.
The most common way to value a company, this approach involves doing a deep dive into your balance sheet. All tangible parts that comprise a business will be summed up, and all equipment, stock, and supplies will be separately considered and then added together. The resulting sum will then represent the overall value to potential stakeholders.
If the liquidation value of a business is needed, this method would be more applicable than the discounted cash flow method, as it will result in a greater company valuation. We can also include a separate, third-party real estate appraisal in our work.
This method of valuing a business uses the approach of calculating how much revenue a company will make moving forward, along with the potential risk factors involved. The current cash flow will be capitalized, discounted, or multiplied to assist in projecting your company’s future earnings.
Each of these unique approaches will analyze your company’s worth in a personalized manner geared toward your company’s individual scenario. Want to learn more about the different valuation methods? Go into more detail on the different business valuation methods that we use to value your small business.
Choosing to Value Your Business
No matter whether your goals are expanding to new markets, creating new partnerships, or selling your business, Business Appraisal FL|GA|HI is ready to have a confidential conversation about your situation and our business appraisal services. Having a comprehensive economic knowledge of your business now will empower you to make informed and confident decisions in the future.