Do you know the true value of your business? As a business owner, having a clear understanding of your assets, where your business stands within the market and finding the best way to stay ahead of your competitors is vital.
You may be asking yourself: How would you work out the true value? What is the best process to take and who is the best person for the job? When it comes to your business being one of the biggest assets you will own, choosing high quality service with qualified professional specialists in the field is fundamental. We highly recommend getting a business valuation completed by a top valuer who knows the ins and outs of a successful business.
It’s a good idea to have an accurate valuation conducted by an independent valuations company that has the knowledge, experience, and skills with a range of services tailored to every business-related purpose you may have. When it comes to a valuation there are multiple methods used, which all depends on the purpose you require. It can be overwhelming not knowing which direction would benefit you and your business in the future. That’s why it’s important to speak to an expert to help you take those first steps.
As a business owner, you should have a good understanding of the market, whether you are starting out or are well-established in the industry. You should also be aware of the internal and external factors, everyday operations and conditions of your business compared to others. This article will guide you to have a better understanding of what you need to know when it comes to a business valuation and why it’s important as a small business owner to stay ahead.
What is a Business Valuation?
The process of the valuation would be determined through an inspection with extensive research and compiled data analysis within the current market to achieve the saleable value of the business. A valuer has the knowledge, tools and appropriate valuation methods to calculate the true value and prepare a detailed comprehensive report with findings of the market conditions and any previous sales within the area, as well as any external factors you would need to consider. This will all help your business grow and become successful.
What Information is Required for a Valuation?
A valuer will assess all the factors that may impact the value of the business and take into account any intangible assets of the business. This can include your business’ reputation, location and intellectual property. A business valuation includes an analysis of the company’s management (capital structure). The most common approach to a business valuation includes a detailed review of the following:
- The industry the business is in
- Financial records
- Current market conditions
- Cost of equipment
- Building and operating equipment (business assets)
- Comparable sales of similar companies
Methods of Valuation
There are numerous ways a valuer can calculate the value of a business. Some of these methods are known as:
- Market capitalization
- Time revenue
- Discounted cash flow
- Book value
- Liquidation value
- Earnings Multiplier Method
This is all dependent on the business owners’ purpose of the valuation and which service/method would receive the best outcome needed. For us the most commonly used method of a valuation, whether you are starting out or well-established, our valuers choose the current market valuation.
Current Market Value
Simply put, a current market valuation calculates what the business would be worth if you were to sell in the current market. The purpose of the valuation can vary depending on what information you require, such as:
- Capital gains tax
- Presale advice
- Pre-purchase advice
- Stamp duty
It is important to know why you need the true value of your business calculated, and that’s where a professional valuer comes in: to determine the purpose of the valuation and ensure you receive the highest standard and quality for the outcome required.
A valuer requires specific information to conduct a thorough and comprehensive report. The information provided may have an impact on the final outcome of your business valuation.
Some of the information a valuer may request includes:
- Bank statements (earnings and debts)
- Annual turnover (profit/loss statements)
- Details of physical assets (buildings, equipment, or stock)
- Legal documents (business registration details, business licences, government compliance purpose paperwork)
Keeping your business profile, data and books up to date is important and helpful not only when you require a valuation but to keep your business organised and operating smoothie. This will also help your business stay on track if anything were to happen and this information was needed urgently.
Conclusion
As a business owner, having a strong foundation and knowing the ins and outs of your business will lead you to success for years to come. Whether you’re starting out or well-established, having all the facts and figures before any major decision making will have a positive impact on your financial standing and future success.
Your business is likely one of your biggest assets, so seeking the right advice and expert knowledge and service is essential for any business owner. The journey can be long and hard, but having the right team in your corner will get you on the right track.
“The opinions expressed by BizWitty Contributors are their own, not those of BizCover and should not be relied upon in place of appropriate professional advice. Please read our full disclaimer."
