Determining the value of a business is very different from guessing what a toaster or set of golf clubs cost on “The Price is Right”. You can’t just throw a bunch of numbers into the air and hope that something sticks. It’s important to take the time necessary to make sure that this figure provides an accurate representation of what your business is worth. Before we get into accomplishing this, let’s dive into the purpose of valuations.
When Do Companies Need Valuations?
The most common event that calls for a business valuation is when an owner plans to sell part or all of their company. A complete understanding of a business’ value will determine how much each party will receive or pay for their ownership shares. An inaccurate valuation could lead an unfair transaction; valuations can also be helpful for business owners who have no plans to sell their business but would like these figures to be better planned for the future of their organization and their own family.
What Does a Valuation Include?
In a 2009 Forbes article titled How to Value a Young Company, Martin Zwilling named three different valuation techniques. The first, asset valuation: this takes physical assets, intellectual property, employees, and customer relations into account to provide the “most concrete” value estimation. Second, a market approach: this aims to determine the potential earnings of a company based on demand and competition. The third, tactic is income valuation: this projects future cash flow and adds a discount to arrive at present value. Zwilling states that “your best bet is an amalgam of all of them. When it comes to impressing investors, the more ways you can speak their language, the better.”
How Can NOW CFO Help?
NOW CFO offers valuation assessments based on all three of the approaches listed in the Forbes article. If your company is in the process of selling, we can work alongside management to develop the most advantageous valuation model. We also provide services that assist buyers, including offering an understanding of purchase accounting and measurement of intangible assets. But you don’t have to worry about all of this accounting jargon. Just know that with NOW CFO, you will be in the best possible hands during your valuation.