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Get an Accurate Business Valuation (part 1)
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If you're planning to sell your business or raise more capita through a private placment
or even considering going public, an accurate valuation will ensure that all the hard work you've put into it will be taken into account and included in the price. Business valuations are also important when seeking investment capital, taking on a partner, or selling shares.While many business owners have an idea of what their business is worth, that idea can quickly wither in the face of challenges from the IRS or other sources. Therefore, getting an accurate business valuation is crucial.
There is more than one type of valuation. For example, there's no point in evaluating a services business based on the value of its physical assets. Other methods to consider include intangibles such as goodwill, which can be difficult to assess. And value may also vary with context and subjectivity a business may be worth different amounts to different people, depending on their preferences and needs.
This means that if you want a meaningful valuation, you will need to discuss your business circumstances with a business valuation expert. You may find that the valuer needs to use a number of different methods and then come up with a final amount that gives weight to each figure that emerged from each method. Good interpretation and judgment will be needed to come up with a final figure that accurately reflects the value of your business.
Value factors
A number of different factors need to be taken into account to ensure that a valuation is accurate and useful. Some of these factors include:
The nature and history of the business
General economic outlook, including industries that affect your business
Your business's book value, financial condition, and earning capacity
Your business's dividend history and paying capacity
Investor risk inherent to your industry
The maturity of the business and its industry
The value of the business in the absence of the current owner
Stock sales
Stock of comparable public corporations
A valuation expert will also review and analyze recent financial history, financial projections, buy-sell agreements, executive compensation, organizational charts, quality of employees, management depth, major customers and competitors, and the viability of the business without the current ownership.
Next article I will continue on various methods of valuation.
Get an Accurate Business Valuation (part 1)
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