Preparing for an Accurate Business Valuation

There are a variety of reasons why a company might be interested in receiving a business valuation. They come in handy during disputes with shareholders, anytime you’re preparing to buy or sell a company, mergers, planning a company’s exit strategy, litigation support, and much more. 

However, when it comes to business valuation, they are only useful if they’re accurate. In fact, an inaccurate valuation can lead to a variety of short-term and long-term issues. To avoid any errors or mistakes in your business valuation, you’ll need the right team of professionals by your side. 

If you’re in the market for a business valuation, we have several tips to help you get the most out of it. In the event you need extra advice, you can always feel free to contact us to further evaluate your current situation. 

3 Different Business Valuation Approaches

One of the biggest mistakes made in the business valuation process is choosing the wrong approach. Many business owners are under the impression there is only one way to do it. In reality, there are three major approaches and each one will value your business in a different way. 

Let’s learn a little more about these approaches:

1. Earning Value Approach – values your business based on its ability to make money in the future. The valuator will either average out past earnings of the company and optimize the numbers for future trends (Capitalizing Past Earning) or average out expected future earnings (Discounted Future Earning). 
2. Asset-Based Approach – as the name suggests, your company will be valued based on its assets and investments. The valuator will either subtract liabilities from assets (Going Concern Asset-Based Approach) or add up the value of the company if it were to liquidate its assets (Liquidation Asset-Based Approach). 
3. Market Value Approach – in this approach, your company’s value will largely depend on how much similar companies (especially nearby) have sold for recently. It’s an approach mimicked by the real estate industry. 

There’s an extremely good chance that you will receive different values for each approach, which is why it’s so important to understand what the value is based on. 

Tips for Receiving an Accurate Business Valuation

Receiving an accurate business valuation can do a lot for your company. Whether you have someone that needs this information or simply want to know for your own records and curiosity, you should always ensure your business valuation is in the right hands. 

Here are some of our most helpful tips when having someone value your business:

• Do your research on the person or firm valuing your business, ensure they’re credible and experienced
• Before you have it valued, do some “spring cleaning” for your business (actual cleaning, getting rid of underperforming products/services, update your website, etc.)
• Have all your paperwork ready for whoever needs it
• Don’t just list out tangible assets, bring intangible assets to the surface as well

If you’re preparing to receive a business valuation and simply don’t know where to start, I’d be more than happy to help you find the right valuator. I can also make sure you have all the documents and paperwork you need. 

Feel free to contact me today for a free consultation!

References

Ward, Susan. “3 Ways to Discover What Your Small Business Is Really Worth.” The Balance, The Balance, 14 Mar. 2020, www.thebalance.com/business-valuation-methods-2948478.

AllBusiness.com. “Get an Accurate Business Valuation.” The New York Times, The New York Times, 25 Dec. 2007, archive.nytimes.com/www.nytimes.com/allbusiness/AB4974377_primary.html?pagewanted=all.