It is important to know the true value of your business at any given moment in your entrepreneurial career, but more so when you want to take your company public or sell out to a competitor.
Knowing what your firm is worth could help you determine what a fair offer for your company is, or what severance package would be suitable to give a partner who is thinking about leaving your firm. As a business person, you should understand that there is no one way to determine the value of an enterprise.
One person would look at the income of his firm and base his valuation on that. The only drawback to this method is that it does not take into account the trend of the future earnings of the company and is therefore rarely a true reflection of the current market value of the enterprise. You could alternatively choose to assess the market in which your product operates to determine what your firm is worth.
Unfortunately, with this method, you would leave out the other factors that determine the success of your firm. Using your company’s assets as a measure of value would also be inaccurate as it wouldn’t take into account current and future liabilities.
For an accurate depiction of what price tag to assign your company, you should try getting a business valuation from a CPA, accredited valuation specialist or investment banker. Here is how a business valuation can help you to better understand the worth of your enterprise.
It helps Draw Conclusions about your Financial Position from Your Own Records
A business is only as profitable as its financial statements show it is. By analyzing records of accounts and legalities from your firm, independent valuation companies can determine how much a company should sell out for or pitch to investors with. As opposed to using the market, asset or income approach, these specialists would give you an accurate valuation, which is in itself the value of your business.
Valuations can give Projections about your Future Worth
Because business valuations consider all aspects of a firm in assigning a value, they can be used to estimate and project how much a business would be worth in future. Valuations, in this case, take into account internal and external market forces, as well as the firm’s current financial and legal standing to determine a trend of how the business is expected to perform.
They can help you know how to Estimate your worth in Future
The firm giving you a valuation uses your financial statements and asset information, as well as prevailing market conditions, to give you an exact measure of your worth at present and in future. By using the same method but with a markedly lower level of expertise, you could come up with your own estimates when needed. Learning how your valuation was done could help you conduct your own in-the-moment estimates in future.
In conclusion, valuations can help you know understand what your business is worth by assessing the financial and overall position of the firm, and assigning a value to it.
You can get both formal and informal business valuations from our Business Valuers. Choose your preference and speak to us today.
Mathieu Paul
Director – Business Improvement
P: +618 6315 2755
E: enquiries@wabusinessvaluations.com.au
The material and contents provided in this publication are informative in nature only. It is not intended to be advice and you should not act specifically on the basis of this information alone. If expert assistance is required, professional advice should be obtained.
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