Business Valuation Services in Dallas
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Wiley Financial is a recognized leader in business valuation in Dallas. Having helped companies and individuals, we have become a favorite for most clients in Dallas and other towns. We strive to give the best services regardless of the size or nature of your business.
What is a Business Valuation?
Business valuation is the process of determining the economic value of a company. It is conducted when a company wants to sell all its operations or a portion of them. In addition, it is undertaken when a company wants to merge with or acquire another company.
Valuers can use its capital structure, the value of its assets, and its management, among others. Business valuation companies in Dallas use different tools such as precedent transactions and comparable company analysis. The choice of tools also depends on the industry the business is in.
Business valuation in Dallas is crucial for staying tax compliant. The IRS requires a company to provide its accurate valuation when selling or purchasing shares.
Why Business Valuation is Important
To Prepare for Unforeseen Events
Often, a business will receive unsolicited offers from different potential buyers. Without informed knowledge about the business’s fair value, they might sell it at a loss. Depending on recent transactions, most business owners will rely on unverified market information, usually an estimate.
In addition, the death of a business owner can also trigger a company’s full or partial sale. If the business receives valuation reports regularly, the process will be better managed, and the outcome will likely suit both parties.
To Have the Upper Hand When Selling
As you’d guess, selling a business is a one-in-a-lifetime event that needs due diligence. People who buy companies are investment professionals who aim to have the upper hand in every sale they make.
To be on the same playing field, you need to understand the fair value of your company, which is indicated in a business valuation report.
To Stay Tax Compliant
As mentioned, the Internal Revenue Service (IRS) requires the accurate value of a company during taxation. A business valuation report can better develop strategies that will help you stay tax compliant.
To Protect and Increase Business Value
A well-documented business valuation report will highlight a company’s weaknesses and strengths. This allows the business owner to see which areas, if invested in, can increase the company’s value.
Besides, a business valuation will highlight threats, allowing the firm owner to take proactive measures before they are realized.
To Improve Business Performance
Business valuation in Dallas also enhances business performance. With an annual valuation, a company can track its performance concerning its goals. And should this continue annually, shareholders can assess the performance of the management team, making adjustments if needed. It also comes with accountability across management levels.
To Develop Better Dividend Policies
Many companies in Dallas can use their earnings to pay debts, reinvest in the company, or distribute dividends among shareholders. And since business valuation is critical in determining a business investment’s return, it helps the company strategize how well to use the earnings.
Business Valuation Approaches
Business valuation companies in Dallas use different valuation approaches. They include asset-based, income-based, and market approaches. Let’s look at each in detail.
Asset-Based Approach
The asset-based approach is a type of valuation that uses the value of a company’s assets. It suggests that a company’s fair value is equal to the value of its assets upon deduction of liabilities.
Valuation companies in Dallas consider functional and economic obsolescence when evaluating a business. The best part about asset-based valuation is that it allows flexibility when interpreting a company’s assets and liabilities.
Asset-Based Methods
- Asset Accumulation Valuation
The method is somewhat similar to the balance sheet since assets and liabilities are compiled together. Each entrant is given a value, with the company’s value being the difference between the assets and liabilities. Some items you don’t find in a balance sheet include intangible assets and provisional liabilities.
- Excess Earnings Valuation
The method combines assets and income methods. With it, you can also realize the goodwill of a business. It is mainly used to evaluate technology companies, manufacturing enterprises, and service providers.
When to Use an Asset-Based Approach
A business in Dallas can use this approach in case of liquidation issues. Besides, it is an ideal approach for investment companies such as financial investment. In such companies, asset value is based on the income approach.
Market Valuation Approach
The market valuation approach considers the prices of similar businesses sold recently to determine your company’s value. Business valuation companies in Dallas will use price indicators such as price-to-earnings and book values.
Market Valuation Methods
If a firm needs more funding, it will often approach investors. For the investors to buy their story, they’ll need to know the company’s value. The appraisal report gives details about a company’s future performance. The investors will tell if it is a profit-or-loss investment option.
- Public Company Comparable
The public company comparable method uses data of publicly traded companies similar to the subject business. As you’d expect, most public companies are large and hardly equal to most small Dallas businesses.
Nonetheless, valuation companies such as Wiley Financial will find at least one company that will offer guidance. This is thanks to our extensive experience in this area. A guidance company will have similar financial composition, operational processes, and others.
- Precedent Transactions
The method uses pricing multiples used in transactions of most companies in the same industry as the subject business. It also utilizes techniques such as SIC codes to develop an elaborate valuation. Furthermore, valuation databases can give insights into past valuations and actuals.
A company in Dallas should consider this method when considering a sale. However, past transactions might have happened in different conditions that may not reflect the present environment.
What to Consider When Choosing a Guidance Company
- Industry
- The Location of the company
- Its profits
- Competition with the subject business
- Products or services it offers
- The size of the company
Income Approach
The income approach uses future cash flows to determine the value of the business. It, therefore, requires one to estimate the future cash flows of a company and an appropriate discount rate for the cash flows.
It utilizes two methods, namely single and multi-period methods. Let’s look at each.
Single Period Method
The single period method is among the several discounted cash flow models. It uses a single projected cash flow of a business, then a discount rate, to find a company’s fair value. For example, a valuation company in Dallas can combine all future cash flows into a single period. This process is known as Earnings Capitalization.
Most companies prefer this method since it is easy to use and understand. Besides, it allows the valuer to use figures from the current year rather than future projections. It is also ideal for stable companies that have predictable earnings.
Wiley Financial uses this method since it is simple and user-friendly. A client can follow through and understand the nitty gritty. And since the assumption is earnings and expenses will grow at a modest rate, one needs not to calculate them separately.
Multi-Period Method
This valuation method derives a company’s value from cash flows from different periods. The valuer will determine future cash flows such as terminal value and divide them with an appropriate discount rate. The rate takes into account the equity and debt of the subject business.
Factors That Affect Business Valuation Frequency
What should companies in Dallas consider before settling for a valuation frequency? Let’s find out.
Profitability and Cash Flow
A business owner should look at their company’s revenue to determine if it can support frequent valuations. If a business brings minimal or no cash flow, there’s no need for a regular valuation.
However, if it brings significant cash flow, then frequent valuation is paramount. An excellent starting point is to identify what percentage of business revenue; you can set aside for professional services such as valuation.
Exit Strategy
Business valuation in Dallas can help a business owner identify risks and value drivers. As such, they can invest in value drivers to increase the company’s value as selling it draws nigh. For example, if you plan to sell it within five years, you’ll need frequent valuations to ensure the value is increasing.
Industry Dynamics
Dallas companies in stable industries such as healthcare, water, and utilities do not require a frequent valuation. They will be resistant to value swings in the market. Companies in volatile industries should consult valuers more frequently. Their value is likely to experience massive changes due to industry trends.
Ownership of the Company
An annual valuation can help keep everyone on the same page if a firm has multiple owners. As such, the process will be smooth should one of the owners decide to buy out. Business valuation in Dallas also prevents shareholder disagreements, mitigating litigation susceptibility.
Conclusion
Obtaining a business valuation in Dallas presents a lot of value to your company. If you have more questions about the process or if now is the right time to perform one, contact us at Wiley Financial to get started today.
