What is Business Valuation?
Business valuation is a general process of determining the economic value of a particular business or an aspect of it. Business valuation can be used to determine the fair market value of a business for a variety of reasons such as sale value, establishing partner ownership, taxation or divorce proceedings. At Wiley Financial, we can help you with our business valuation services in San Diego as well as across Southern California.
Why do you Need Business Valuation Services?
If you want to know exactly how much your business may be worth if you sold it, you should seek a business valuation. Having an accurate business valuation before any talks begin will ensure you are better positioned during negotiations.
A business valuation shows more than overall worth, it also shows where that value originates from. The value of one business could come from entirely different sources than another business. A local business that is important to the community in San Diego, for example, may have a high value for that particular community. However, that does not mean that it will have value elsewhere or to a certain buyer. Likewise, a business that seems like a tiny startup could provide substantial value for a buyer if it fills the right void. There are many facets to business valuation and it comes down to the details.
That being said, it is critical to get a proper valuation from an experienced accountant. In addition to understanding the business, an accountant doing the valuation should know the ins and outs of finance, venture capital, tax law and other fields. You will see a lot of benefits from a well-done business valuation if you are interested in stock compensation, expenses or selling price. However, any advantages of doing a valuation are up to you and your business. The associates at Wiley Financial may help you clarify the reasons for your valuation and the best approach for your particular business.
The 3 Approaches to Business Valuation
1.The Asset-Based Approach
The asset-based approach totals up the assets and liabilities of a business to end up with the net asset value. The goal of this approach is to determine what it would cost to set up an identical business. In theory, this approach is very simple. However, it takes a true professional to be able to determine what to include and do it correctly.
2. The Market-Based Approach
The Market-based approach looks at the market as a whole and not solely at your business. The value of other businesses in San Diego could provide insight on your own. The goal is to see what your business would be worth by comparing it to other similar businesses in the same market. This approach considers the overall market conditions. Also, with this method of business valuation it is important to factor in what a buyer would currently pay. Buyers want to pay fair market value, not necessarily what the business is worth to you.
3. The Valuation Based on Earnings or Income
This approach to business valuation looks at what the business is bringing in. It factors in the present and the future. This approach does carry with it assumptions, adding risk. The goal of the valuator is to normalize the earnings when determining the value of the business and work from there.