As an owner of a business entity, you have to be constantly on your toes to manage any unforeseen situations. Even if you have tasted success in your venture, business involves huge risks and ‘Business Valuation’ is one good way to mitigate that risk. To make it easier for you, ‘Business Valuation’ provides facts and financial figures regarding the actual worth of the company in terms of market value and asset valuation.
There are several approaches to evaluate a business. A market approach measures the worth of your company against several comparable public companies. Financial buyers, on the other hand, take the income approach, which is actually dependent on discounted future financial returns. The cost approach, which rarely comes in use, calculates the replacement cost of assets, adjusted for depreciation and obsolescence. Based on the presumption that few businesses are worth more “dead” than “alive,” it is often used by liquidators.
In a very generic term, evaluating the business at periodic intervals is a basic fundamental activity which highlights the current growth and holds the future prospects of the company. Only when you are aware of the real worth, you can plan your strategies accordingly for the years to come, minimize the risk factors, control tax liability and even have a transparent audit system introduced in your organization. Additionally, from the investor’s point of view, finding the actual worth is vital to gain early success in your business journey.
Below, we have highlighted some of the major benefits of performing Business Valuation
Settling legal disputes and litigations
Increases your business value
Helps in mergers and acquisitions
Better decision making
Planning to buy a business or ownership interest.
Planning to sell your business or transition ownership.
Planning for retirement.
Planning to buy out a partner or shareholder.
Buy or sell an Agreement which requires a valuation.
Require an appraisal of an estate tax return.
Determining the worth of the business is totally dependent on the type of entity you have! For a start-up venture, where there is no background the valuation process relies on the financial projections which gives a picture of how much money they expect to bring in the next 1 or 2 financial years. Now for enterprises which are there for a long time, they use past and forward projections on the basis of their present-day valuations.
Every addition to your business- be it marketing plans, training, hiring new employees, opening new branches can ensure a rise in valuation. Hence, smooth functioning along with steady growth plays a key role in evaluating the process.
Now that you have an idea of how does ‘Business Evaluation’, impact your venture, selecting the right valuation team also matters a lot.
Few points to consider while choosing the right valuation team is listed below:
In business, having a good relationship in the markets helps a lot in creating goodwill which can assist to increase the valuation to a certain extent. The evaluating team has to have a process through which they can convert the goodwill in monetary terms. Having a comprehensive and comfortable channel of communication with the owner is quite important.
The evaluation process requires deep knowledge and experience in gathering the scattered pieces of information and presenting them to the prospective buyer or investor in a perfect business case. Here the ability of the team counts a lot to showcase the strengths and positive side of the business which will boost the valuation.
As an entrepreneur you have to be ready to encounter the unforeseen situations like succession planning, resolving business disputes, raising equity, establishing shareholder value, handling divorce and financial reporting to name a few. When the actual time comes, doing a guesswork can prove to be a costly move which can land you in big trouble. A comprehensive valuation is the best investment which highlights the genuine financial worth which can help you to take the best foot forward when you actually need it.
The life of an entrepreneur is quite synonymous to a roller-coaster ride. As the dynamics of market changes so does the fortune of the business and here’s when a well-crafted ‘Business-Plan’ can be a life saviour. However, one key point which business owners often miss out is writing the ‘Exit Strategy’. Although it might not be a ‘positive’ phrase at the start of a business, Industry experts and analysts believe that anticipating an ‘exit strategy’ can save you millions. HOW? This post covers the life-cycle of an exit strategy and answers why it’s an integral part of every business plan.
Formulating an exit strategy at the start of your business helps to be focussed and have a clear vision for your business. The motive is to determine how a business can maximize its value, rather than being sold in a haphazard way or in a simple loss. Ideally, it allows the business