Best Business Valuation Methods

Re: Best Business Valuation Methods

The first question many business owners ask a BV professional is whether they ever valued a business like theirs. Although that is a good question, it misses the point. Regular and recent BV experience is much more important than specific industry experience. BV procedures are generally the same regardless of the industry or type of valuation. BV professionals are good at research and have many excellent resources to learn the ins and outs of most industries.
Ask to see samples of their business valuation reports. You may not understand some of the real technical stuff, but you should be able to make sense of what was done and why. The valuation result or conclusion should also make sense to you. The best BV professionals in the world are worthless if they can’t write a report that can be understood by non-financial people.

Re: Best Business Valuation Methods

1.Types of Business Valuations:-Associate Equity Business Sales & Acquisitions offers various types of valuation reports. Depending on your business needs, our valuation reports are tailored to meet specific needs while offering a sound, realistic opinion of the fair market value.
2.Fee-Based Valuations:-When a more formal valuation of your business is appropriate, Associate Equity Business Sales & Acquisitions utilizes the services of the best independent valuation company available. Their appraisers follow the standards and guidelines established by the Uniform Standards of Professional Appraisal Practice and the Code of Ethics of the American Society of Appraisers and hold the highest industry designations, making them experts in their field. This team has spent countless hours researching various transactions, reviewing court cases, and conducting detailed financial analysis for hundreds of businesses, giving them the most comprehensive databases and comparable transactions available. They develop a business valuation report tailored to specific business, financial, and legal needs for the business.
3.Letter of Opinion:-Depending on the purpose, this report can range from 6-20 pages. The final report contains a cover letter outlining the purpose of the opinion and the valuation conclusion followed by supporting financial exhibits.
4.Value Analysis:-A limited scope report designed to value "Main Street" businesses - those with sales of approximately $1,000,000 or less. Although it is based on the financial s of the business in combination with market conditions, it considers primarily the current and historical performance of the business rather than balance sheets. It is intended for owners and buyers looking for a general range of value.
5.Formal Valuation:-Designed for larger businesses - those with sales of approximately $1,000,000-$5,000,000 - this limited scope, comprehensive report provides a thorough analysis of the Income Statement and Balance Sheet, Common Size Analysis, Comparable Transactions, and Industry and Economic Review.
6.M&A Valuation:-A USPAP formal narrative intended for stock valuations and valuation of large companies, strategic mergers and acquisitions. It is a complete financial and operational overview.

Re: Best Business Valuation Methods

Asset valuations consider the business to be a collection of assets that have a marketable value to a third party in an asset sale. Asset valuations are typically used for businesses that are ceasing operation and for specific types of businesses such as holding companies and investment companies. Asset valuation methods include the book value method, the adjusted book value method, the economic balance sheet method, and the liquidation method.

Re: Best Business Valuation Methods

A Business Valuator (or anyone valuating your business) will use a variety of business valuation methods to determine a fair price for your business. Basically these business valuation methods total up all the investments in the business. Asset-based business valuations can be done on a going concern or on a liquidation basis. With this approach, a valuator determines an expected level of cash flow for the company using a company's record of past earnings, normalizes them for unusual revenue or expenses, and multiplies the expected normalized cash flows by a capitalization factor.

Re: Best Business Valuation Methods

Business valuation determines the monetary value of a business, primarily for the purposes of selling or transferring the company. But it is beneficial to complete a business valuation every two to three years because the results are helpful as a benchmark in measuring financial success.

The most common and generally accepted methods for determining an organization's financial value include book value or adjusted book value, sales or profit multiplier, cash flow and the market true value method.

1. Book Value
Using book value is a simple matter of assets minus liabilities equaling owner's equity, with owner's equity being the book value. Adjusted book value takes into account liabilities not assumed, fair market value of acquired assets, assets not acquired and any net worth adjustments. While this method is simple and straightforward, it depends on accurate accounting records.

2. Sales or Profit Multiplier
Using a sales or profit multiplier is the most common method of valuing a business. Basically, you multiply annual sales by the standard industry multiplier or use the commonly accepted rule of thumb for your industry. For example, as an independent insurance agent, your business would be valued at 100% of the annual commissions. A carpentry business would be valued at four to five times the annual earnings before any interest or taxes.

These multipliers may be found through your industry association, from the Small Business Administration, financial publications and business brokers. Usually, the multiplier is used with the annual sales figure. In some industries, the multiplier is used with the gross profit number. In retail businesses, gross sales and inventory are added together and then used with the multiplier.

3. Cash Flow
The cash flow method of business valuation is based on how much of a loan the business would be eligible for based on the cash flow. Adjustments are made with regard to amortization, depreciation and equipment replacement. The resulting eligible amount of the loan is the business value.

4. Market True Value Method
This is really the only method that guarantees 100% accuracy. This method states that at the date and time of the sale, the business is worth the purchase price a buyer provides. In a market-driven society, this is the true value of any business.

Re: Best Business Valuation Methods

The valuation of a publicly traded corporation is relatively simple. The valuation of a closely held company can be extremely complex.The exact process depends on the type of business. For professional practices, specific valuation techniques are used and good will is generally not considered.

Re: Best Business Valuation Methods

Hi,
This is a wonderful thread having outstanding information about the tips and methods on business valuation. This must be viewed and to be known to have a best knowledge on business valuation.