Business valuations calculate the equity ownership of your company. To gain a Business Valuation, you hire a certified appraiser who will calculate what everything in your firm is worth. However, there are a few things you should know about these financial documents.
Value Calculation Process
The value of your company’s assets can be determined in three ways: the income, market or asset approach. If your income is the basis of your valuation, your appraiser evaluates the risks associated with your company for investors. Then, these professionals will determine the return on investment necessary to meet their clients’ investment risks. If your appraiser is calculating the fair market value of your company’s assets, this individual is using the asset approach. This type of assessment is typically used for companies that are not making a profit or cannot meet their expenses. Finally, publicly-traded companies are often valued based on the market approach if a merger is being considered. Because three approaches can be pursued, your company may have more than one estimated worth.
Purposes of a Valuation
Most valuations are used to determine the purchase price of your business if you are getting ready to sell it. However, they can also be used to gain equity financing. If you plan to give away equipment, furniture or other business assets, an assessment will also determine their value for tax reductions. Any time your company is in a legal battle, you may be required to determine your company’s worth so the assets or financial compensation can be distributed to the opposing parties if the court finds in their favor. Finally, you will be required to calculate the value of your company in situations where you need to report your financials.
Valuation Standards
Every company valuation must meet specific standards. The Institute of Business Appraisers and American Society of Appraisers are the organizations that set the Uniform Standards of Professional Appraisal Practice. In addition, these professionals may be Accredited Senior Appraisers, Certified Valuation Analysists, Certified Business Appraisers or Accredited in Business Valuation; these accreditations are awarded by the American Institute of CPAs.
If you need insight into your business’s value, consider contracting a reputable appraiser for a corporate valuation.
