Business Valuation – What is It?
So, what is Business Valuation? Essentially, in layman’s terms, a business valuation determines the value of your business. There are many different considerations that play into determining the value of a business and there are several different steps involved in setting up a basis for the current value of your company. However, business valuation does not always have to involve a financial institution or a bank. Business valuation can be done by a private individual or an investment firm. In either case, if you would like to do a Business Valuation, it is important to note that in most instances, the results of the Business Valuation will be used in the determination of your company’s free cash flow (FCF).
If you are going to do a Business Valuation, you first need to prepare all of your financial statements, including profit and loss statement, balance sheet, and income statement. The next step is to obtain the opinions of three to five outside credit references, who will review your business financial statements. These potential credit references are referred to as qualified observers. If you are unable to locate qualified observers, you may wish to enlist the services of your attorney. Your attorney will be able to provide you with a list of people who would be interested in purchasing your company.
Once you have assembled your qualified observers, you will then submit your business valuation request to potential buyers. Upon receipt of your request, potential buyers will be asked to supply information on the cost of their bids. You will also be required to supply information on the cost of your company’s marketable securities and preferred stock. If you decide not to sell your company, the buyer will ask you to supply a cash offer. This process should only take one to three days to complete.
If you decide to sell, you should keep in mind that the price you are offered is likely to be much lower than the overall value of your business. As such, you should focus your selling efforts on commanding a higher value for your company. A potential buyer will be interested in obtaining a higher price because they know that there are many potential benefits from buying your company. In order to command a higher price, you will likely need to provide a substantial amount of tangible assets for sale. These assets could include cash, preferred stock, patents, or franchises.
Business valuation should not be limited to the process of obtaining a profit or loss analysis of the company. Many financial indicators will play an important role in determining the value of a company. The six financial indicators that we have mentioned above should be used in tandem with one another to ensure that you obtain an accurate assessment of a company’s current market value. These financial indicators are Company Earnings, Purchasing and Selling Activity, Income Taxes, Business Valuation Indicators (BVIs), and Other Indicators.
If you are able to determine a reasonable market value for your business assets, you can then price them below book value. This represents an acceptable price for the future gains that the selling process can potentially generate. We strongly recommend that you only use valuation as a guide when attempting to determine the fair market value of your business assets. Our Market Volatility and Fair Value Measurements will help you avoid the costly mistakes many real estate professionals make when pricing their real estate properties.