Business Valuation is the recommended value or price of the business that could be paid to the outgoing owners in exchange for the entire or part of business by the incoming/purchasing party. It is a set of procedures used to estimate the economic value of an owner’s interest in a business. Simply it is a set of procedures to find the worth of the business. It is ascertaining a value for a business organization. This is usually done during purchase or sale of businesses, mergers & acquisitions, for evaluating share amount of incoming and outgoing partners and also for evaluations done by bankers and investors. Though it is not a science with precision but it uses certain management tools resulting in near accuracy.
In addition to estimating the selling price of a business, it is also used to resolve disputes related to the business and the court could appoint an accountant as the joint expert doing the business valuation.
Business Valuation may sound very easy but it certainly requires lots of thinking and analysis to arrive at a right price of the business.
Lots depends upon your assumptions while valuing the business. There is no one way of valuing the business.
A business owner may believe that the business connection to the community it serves is worth a lot. However an investor may think that the business value is entirely defined by its historic income.
Hence, business value is really an expected price the business would sell for. The real price may vary quite a bit depending on who determines the business value. Compare a buyer who wants the business immediately now because it fits important lifestyle goals to a buyer that purchases with no hurry and at lowest price possible.
The selling price also depends on how the business sale is handled. Contrast a well-conducted business marketing campaign and a “fire/distress sale”.
There are three methods to measure what a business is worth:
- Asset Approach
In this Approach of valuation, we concentrate on the value of the companies asset or the fair market value of the company net of liabilities.
- Market Approach
In Market Approach we provide Business valuation by comparing the similar business assets and Market multiples.
- Income Approach
In Income Approach, we project the approximate cash flow that the business would generate during its lifetime.
These methods are used by the business valuation practitioner after assessing factors most suitable.
We at KC International can assist you in arriving at the most appropriate Business Valuation amount . These are based upon approved professional standards. Our method includes reviewing both historical and forecaster information, including balance sheets, segmented income statements, assumptions, accounting principles and cash flow, conducting meetings with management,employees, customers and competitors, analyzing benchmarks, risks involved, swot analysis, and examining local and national economies and management competencies.
We have proven expertise and experience in providing realistic valuations that one can rely on.