business valuation for dummies

Business Valuation for Dummies

Business valuation: goals, approaches, and methods for determining the value of an enterprise that will be checked in the article called business valuation for dummies below.

Why May You Need Business Valuation?

Increasing profits and finding new opportunities are the essential goals of entrepreneurship at all times. At the same time, today the business itself is often considered a commodity. Having invested money in the company, the owners expect to receive it back in multiple increases in case of its sale. But how to estimate the real value of a business? The answer to this question is given by professional appraisers.

Business is a set of processes aimed at the production of goods or services for profit. To understand how interesting your project is to investors and what income it can bring in the event of a sale, you need to know its cost. In this article, we will tell you how to assess the value of a business, what are the methods of calculation and approaches.

There are some cases when you may need the business valuation:

  • when buying or selling a company;
  • when restructuring an enterprise (liquidation, merger, acquisition, spin-off, etc.);
  • for management purposes (for more efficient company management);
  • to resolve disputes (withdrawal from the founders, division of property, etc.);
  • to get a loan;
  • when attracting investments;
  • to buy out part of the business;
  • when taxing an enterprise (when determining the taxable base, it is necessary to conduct an objective assessment of the enterprise);
  • when revaluing the assets of the enterprise for accounting purposes.

What Should You Know About Business Valuation Basics?

The cost of a business is an analytical indicator of future cash flows that the owner of an economic object can count on: an organization or an enterprise. Business valuation is a system of procedures for calculating the current value of a business by experts. The appraiser examines all business processes, constituent documents, property conditions.

To correctly assess the value of a company, you need to understand that public and non-public companies provide shareholders with fundamentally different opportunities for generating income. The article will help you choose the best approach to assessing the value of a business, depending on the purpose, completeness of information, and the degree of reliability of the data.

Determining making the valuation basics of such a complex asset as a business is a creative and very complex task, the solution of which requires a specialist to have a clear understanding of macroeconomic and industry aspects, financial, accounting, legal, and tax issues, as well as technical competence, accurate knowledge of valuation methods and approaches.

Estimating the value of a company, an individual business, or part of it is a complex and at the same time a creative task for a specialist. It requires a clear understanding of the economic, industry, financial, accounting, legal, and tax aspects of pricing, as well as technical competence, accurate knowledge of valuation methods and approaches. For the most part, business valuation publications on the market do not provide practitioners with a choice of solutions.

The business owner can choose between two alternatives. The first option is heuristic. In other words, the price is formed on the basis of a subjective assessment by the owner himself, the business is put up for sale, and the price is subsequently adjusted depending on the response of potential buyers. In the end, this path leads to either wasting time or missing funds due to too low an estimate.