Business owners looking to sell or insure their business often linger to get a quick fair price for the business. It can be that you want to calculate the suitable price for your business too but have a few questions in mind for your business appraisal.
Quite a few sources provide you with information on how to calculate the fair value of your company, but they often mislead you or do not answer the question you have in mind. That is why we are here with the answers to a few commonly asked questions by business owners.
Business valuation is about determining the entire economic value of the company following a set of steps. These steps have different methods of calculating your company’s value that factor into the business appraisal. The factors include evaluating the prior and recent earning graph, assets, liabilities, intangible & tangible assets, business reputation, staff & management, the overall financial performance, and market conditions.
It might not be in your best interest to sell your business, but there are other reasons you must know the fair value of your business that include.
So, when you have the valuation of your business ready, at the time of emergency or unforeseen situations, you will not have to negotiate the business value at the time of adversity.
To determine the value of a business, we have penned down three approaches to calculate the valuation of your business. Here are the three approaches that almost every appraiser approves and says must be used for business appraisal.
This method focuses on assets and investments made in the business. The asset-based approach is a broad part of business valuation and is a general process followed when you buy, sell, or insure your assets. The following are some ways to determine the asset value of the business:
It is the total amount of money left after selling the company’s physical assets and paying debts if it were to go out of business.
This approach involves discovering the return on investment or the future cash flow based on the company’s prior earning records. This information is used generally for unusual expenses or revenue and multiplied by a capitalization factor.
Take the past net earning track of the company and process that figure by capitalizing this number on a present value. Now, by determining the net present value of the future expected profit of the company, we calculate the capitalized earning. This method will predict the ROI while presenting the level of risk it involves. Calculating earnings by this method is easy. All you have to do is take future expected earnings and divide them by the expected capitalization rate.
This way, you will know your growth considering the past profit rate, and by calculating the forecast earnings, you will learn about the risk involved.
If your organization does not have long transaction history, you must try this method for your business valuation. Discounted future earning method relies on forecasted future earnings to obtain the present value of future revenues. It takes the company’s terminal value and earnings for each period and discounts them to the present value to obtain a result.
There is no single method to identify the business value as there are many reasons to prepare the business appraisal and factor that affect the valuation. So, only a professional appraiser can decide on which method or the combination of methods that should be used to determine the fairest value of your business.
If you are looking for a certified business valuation company, go no further than our team, Wiley Financial.
Wiley Financial is a full-service accounting firm that has worked with a variety of businesses over the last 20+ years.
We understand that when you want to sell your business, insure it, grow it or any other scenario where you need to get a business appraisal, many questions come into mind. However, that was the reason we addressed these questions and methods through which you can educate yourself on how to value your business accurately.
Our expert business appraisers can calculate the most accurate value of your business. If you are looking forward to getting a business valuation done, contact us today.