Business Valuation Seattle WA
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Business valuation in Seattle, WA, is crucial in determining a local company’s value. It means you need the expert’s input in this. And one company you can depend on is Wiley Financial, a company with over 20 years of experience, conducts valuations for a wide range of companies in Seattle, WA.
What is Business Valuation?
Business valuation is determining the current economic value of an asset or company using several methods and approaches based on a company’s industry and business model. Evaluators will analyze its capital structure, management, and prospective future benefit streams.
Business valuation is standard, especially when one wants to sell a company. It enables the owner to determine the fair market value. Evaluators can evaluate a company’s liabilities or assets. Some of the reasons for valuation are litigation, financial reporting, and capital budgeting purposes.
Reasons for Business Valuation
There are many reasons to conduct business valuation in Seattle, WA. Here are the main ones:
Litigation
In legal proceedings such as divorce or injury, the value of a business is crucial. The cost will be based on the company’s fair value if you need to pay for damages. It also enables lawyers to divide company assets between spouses in case of a divorce.
Buying a company
Like other assets, you want to buy a firm at its fair price. To avoid a raw deal, you must determine the company’s value. A business valuation will consider future income, management, and market conditions to determine the value.
It is, therefore, paramount to consult a professional business evaluator. Wiley Financial is a certified valuation company in Seattle, WA, which you can count on.
Selling a company
Like buying a firm, you want to sell your business at a profit. The price should represent years of hard work and intensive investment. To ensure you are selling at the right price, you need to have it evaluated. A valuation will help you achieve an attractive asking price for prospective buyers.
Exit strategy planning
If you are planning to sell your business, it is prudent to have the company’s fair value. It will help you develop an elaborate exit strategy, enabling you to sell at a profit. For example, you can identify areas you can invest in, increasing the company’s value significantly. As such, you’ll identify the right time to sell the company.
Funding
Having an objective business value can help you engage with investors and banks. Besides, professional documentation of a business’s value is a prerequisite to funding. It shows potential investors the current and future value of the company, enhancing its credibility among investors.
Strategic planning
To make better decisions, you ought to understand what makes your business valuable. And this is what a business valuation provides you. With it, you can make strategic investments and hire to increase the business’s value.
Principles of Business Valuation
To understand business valuation in Seattle, WA, you must grasp its principles well. They include:
Value is point-in-time specific
The value of a company is dynamic and changes every day. Its earnings, cash position, and working capital are also evolving. Not to mention the market conditions, which in many industries, are very volatile.
A good example is the price of a publicly traded company. Its value changes every minute, if not every second. As such, last year’s value is not the same as this year’s value. You should conduct regular valuations.
Value is a future cash flow function
Generally, a firm’s value is based on its ability to generate future benefit streams. Historical data only shows the momentum of the business and future events. Cash flow is a crucial aspect, more than metrics such as net earnings and EBITDA.
It determines the fair market value of a company. To ensure accurate valuation, build an elaborate future cash flow forecast. Having detailed historical data will help support your projections.
The market determines the ideal rate of return
Tangible assets affect a firm’s value, making it attractive or unattractive to potential investors. For example, Company X and Company Y each generate $7 million in cash flow. However, Company X has $20 million worth of tangible assets, while Company Y has $10 million value of tangible assets.
If a buyer were to buy either of the companies, they would choose Company X. It is because it has more security and its investment risk is lower than Company Y. As a business owner, you should aim to build a robust asset base.
Future cash flows will influence the value
The transferability of a firm’s cash flows can significantly influence a company’s value. Some of the most valuable and salable companies operate without the owner’s leading role. If the owner controls decision-making, the goodwill is tied to the owner, not the business.
As you’d expect, personal goodwill is not transferable and has little to no commercial value. To avoid such as scenario, ensure to strengthen your management team. In such a way, should you leave, the company should continue operating.
Liquidity influences value
It is a fundamental business concept that utilizes supply and demand. Fundamentally, the quality of business acquirers affects the company’s value. As such, you should aim to attract the best buyers to negotiate a deal. If possible, do it through a controlled auction.
Premiums are paid to control a business
Buyers will pay a premium to dictate the future of a business. As you’d guess, minority shareholders have less control over a company. For example, they do not control the business nature, select directors, or influence a company’s strategic direction.
Factors Affecting Valuation Frequency
Profitability
As a business owner in Seattle, WA, you should consider if your business can afford regular business valuations. If the firm does not produce significant cash flows, there’s no need for regular business valuations. On the other hand, consider evaluating it regularly if it makes substantial cash flows. Maybe twice a year.
Exit strategy
Business valuation enables you to understand what drives the company’s value and its risks. This information can help you develop a practical exit strategy, allowing you to sell the firm at a profit. If you plan to sell the business in less than five years, regular valuations will be of help. It will help you identify improvement areas, increasing your company’s value.
Industry dynamics
Companies in stable industries such as utilities can do with sporadic valuations. However, firms in volatile sectors such as tech need regular valuations. It is to ensure their value represents current market conditions.
Concentration risks
If a business has a small target market, swings in the market can affect its value significantly. It is because major or minor announcements can affect the purchasing behavior of its customers.
Number of owners
If your company has several owners, you’ll need regular valuations to keep all on the same page. It will help reduce disagreements among shareholders should a buyout be imminent. If possible, have annual business valuations.
Business Valuation Approaches
Conducting business valuation in Seattle, WA, involves three primary approaches. They include:
Market approach
The market approach is the most appealing of the three since you must compare the subject company with its peer companies. It relies on transaction multiples of past acquisitions and sales. The evaluator in Seattle, WA, will multiply the company’s earnings with the multiple.
The approach uses three methods – guideline transaction, guideline public company, and prior transactions to determine a firm’s value.
Income approach
As the name suggests, it uses a company’s sources of income to determine its value. It is the most preferred approach among valuators in Seattle, WA. Like the market approach, it uses two methods: discounted cash flow and capitalization of cash flow.
Asset approach
This approach is also referred to as the cost or replacement cost approach. The difference between a company’s assets and liabilities value is the company’s value. It uses adjusted asset and capitalization of excess earnings methods to determine a firm’s value.
Methods of Business Valuation
Some of the most common methods of business valuation in Seattle, WA, include:
- Market capitalization
- Times revenue
- Earnings multiplier
- Discounted cash flow
- Book value
- Liquidation value
- Breakup value
- Replacement value
If you want professional business valuation in Seattle, WA, contact Wiley Financial today.
