If you wonder what business valuation means or what benefits does it have upon a company, then you should definitely keep reading this article. The concept of business valuation refers to knowing how much your business is worth at the moment. The reasons why you might want to do this involve different kind of factors. For instance, you might want to sell your company in the future, simply because you are going to retire, or you encounter family issues that won’t offer you the possibility to continue handling whatever keeping it implies.
Why doing this?
Another reason could be represented by debt. Many people encounter great amounts of debt while owning a business and this is not something unusual. If you have to sell your business because it no longer generates as much money as it used to, certain buyers can be interested in rethinking the whole strategy and buying your company entirely. Knowing how much your business is worth will help you out not to lose money while selling it to somebody else. Also, if you desire to add shareholders to your business, you should understand what a buyout means and how important business valuation is in this case. The good part is that services like Stephens & Nashland CPAs can help you out with handling business valuation at its best. The only thing you need to do is deciding what your goal is and how you can achieve it. Read below a series of tips and tricks related to business valuation methods.
How to do it?
Here are three main methods to choose from when desiring to complete a business valuation: asset-based, earning value, market value. The aforementioned methods imply different characteristics. For instance, when talking about asset-based valuation, you can apply this method to your company on a liquidation basis, which will visibly reduce the time spent with this process. This approach would determine the net cash received if everything related to your company would be sold.
When referring to earning value methods, you should know that this method is reliable for companies that presume that they produce wealth in the future. This method is mostly used when the business owner wants to sell the company to another person who would like to bring it to another level. Earning value approaches help business owners to foresee the potential of the company they are selling. This method is usually related to discounted future earnings, where the past earnings are no longer taken into account, but an average of predicted future profits.
Market value approaches are usually considered by people who compare their company with other similar companies in the field they are activating. This method works best for business owners that desire to sell the business rapidly. Yet, the market value approach works only when there are enough similar businesses in that respective field of work to allow you to compare the results. Also, keep in mind that non-competition clauses often affect the way this method is applied.