Business Valuation
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Factors that Determine the Value of a Business
When valuing a company, these are some of the factors to consider:
- The profit of the business over a given period of time
- The assets owned by the company as at the time of valuation
- Potential growth of the company as determined by its viability and relevance to the economy
- The economic situation of the location of the business
- The financial strength and viability of the industry of the company
- Potential risks associated with the business
All these factors are put into consideration during CPA business valuation in order to estimate how much the business is really worth. To carry out company valuation, professionals valuing a company will analyze its business model, business plan, business strategy and income statement.
Business Valuation at a glance:
Some valuation methods include...
When estimating a company value, there are different methods that can be put into use with each method using different strategy to arrive at what the company is truly worth. Here are some valuation methods:
- Potential Future Earning Method
Valuing of a business is done here using the earning of the business in the past years to project what the business could earn in the future. In most cases, the profit made by the company in the past 3 years is used as a pointer to what it could earn in the next 3 years, and this will be the basis of what it is worth.
Other common valuation methods are discounted cash flow method, return on investment method and earning multiple method.
Asset Valuation Method
- Asset Valuation Method
This valuation method considers the asset of a business in order to determine what the business is worth. Under asset valuation, liabilities of the business must be also considered to determine the worth of the company.
Comparable Sales Method
- Comparable Sales Method
This is a subtle method of determining a company value by considering how much another company in the same industry with similar viability, financial strength and growth level was sold.
Potential Future Earning Method
- Potential Future Earning Method
Valuing of a business is done here using the earning of the business in the past years to project what the business could earn in the future. In most cases, the profit made by the company in the past 3 years is used as a pointer to what it could earn in the next 3 years, and this will be the basis of what it is worth.
Benefits of business valuation:
- Business valuation can be helpful when selling a business. When a business owner put up a business for sale, the goal of the owner is to sell as high as possible while the investor will want to buy the business as low as possible. When business valuation is done by professionals like our experts at EC3, the right value placed on the business will be one that will be suitable for both the business owner and investor.
- It can also help in solving financial and ownership issues of a business during divorce or family problems when different parties want to own some shares of the business.
- It can also solve partnership issues in case there are multiple owners
- Business valuation is equally important when the shares of a company are being put up for sales among investors
Overall, business valuation should be done by every small business in order to place a value of what the business is worth. EC3 can be of help to you in whatever capacity you want in order to determine the true value of your business.
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