All businesses are unique, and the method of valuation should reflect the unique features of a business. Many people would say that business valuations are subjective processes that depend upon tangible and intangible factors to determine the value of a company.
Tangible factors that a business broker will use to estimate the value of the business include profitability, historical incomes, the balance sheet and the net asset value. Tangible factors are almost easy to quantify, but a qualified financial analyst should be retained to perform the valuation to avoid giving incorrect valuation figures. Tangible factors are used to measure the value of the following items:
* A company’s financial history (profitability, revenue and cash flows)
Intangible assets are difficult to quantify and are subjective factors as they are likely to elicit a subjective judgment. The following factors are used to measure the qualitative value of a business:
* A business’s relationship with its customers, suppliers and clients
* A company’s goodwill, which is the reputation of the business
* The reputation of the business
* The quality of employees
* The level of competition between the business and its competitors in the industry The number of repeat customers
You can measure the worth of your business using various methods, including the asset valuation method, industry valuation and discounted cash flows.
Asset valuation-This method seeks to find the actual value of a company’s total assets. Here, the value of a business is derived by subtracting all liabilities from total assets. This method is ideal for valuing a business that has a large asset base.
Industry valuations -;Some companies use industry averages to determine an estimated value of assets of a business. Here, the average prices of various products in a portfolio are compared to other transactions in the industry.
Discounted cash flows – You can Value A Business MN by using historical cash flows and projected cash flows. This method is used to value businesses that have huge investments, low asset value with scanty financial history. This is the best method of valuing businesses that have barely been in operation.
Given the technicalities involved in measuring the value of a business, it is important to hire someone who has the experience required for this type of job. While a business accountant can help with valuing a business, a professional business broker is the best Expert Business Brokers to perform this rigorous job.