Do you own a business? Are you certain of your business’s net worth? Perhaps you are considering investing in a business and want to be certain that the owners are fairly representing what the business is worth. Maybe you are involved in a dispute with other parties who own a portion of the same business. Is there any way to accurately determine what the true worth is? Often, there is. You can hire a business valuation firm to research the business and give you a comprehensive report.
A business valuation firm is a company that specializes in finding the net worth of other companies. This information may be useful for shareholders, investors, potential lenders and government agencies, which must determine appropriate taxes.
Normalize the Financial Information
In order to be truly useful, all financial records must be prepared according to the same set of rules. Normalizing financial information is the process of redoing any nonstandard records according to current accounting practices.
Determine the Relevant Economic Conditions
Two businesses with the same net worth may actually vary significantly in value. The true value of a business is determined not only by the balance sheet, but also by economic conditions such as inflation, current interest rates and tax burdens.
Compare the Company to Similar Companies
On paper, a business may seem to be much more or less valuable than it actually is. To get the best idea of a company’s true value, it must be compared to other companies which are in a similar industry, and area.
Prepare a Report
Once all the calculations are done, a certified company valuation firm will prepare a report outlining the valuation process and findings. This report will be valuable to the stakeholders and other concerned parties.
Types of Valuations
A business may be worth more or less when it is examined in a particular manner. There are a few different ways to determine the valuation of a company:
Income Based
One way to consider the worth of a business is to determine what its income potential is. A business with very few assets may have enormous income potential and vice versa. In the short term, this is a good measure of the value of a business to investors. Unfortunately, it is not useful if the business is closing or if it is for sale.
Asset Based
Perhaps the simplest way to determine the value of a business is to add up all its assets and subtract its debts. Many businesses already prepare balance sheets on a monthly, quarterly or yearly basis that show this very measure. The problem with asset-based valuation is that it says nothing about the potential future of a business.
Market-Based
This approach is designed to determine what a business would be worth if it were to be sold today. Unfortunately, this answer changes based on who is buying the company and what their intentions are.
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Veriti Consulting LLC provides certified business valuation services across the U.S. To learn more about our business services call 855.232.4410 or contact us via email.
Read related articles:
- What’s My Business Worth?” How to Find Out
- Step By Step Overview of How To Value A Business
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