Whether you are a seller looking to determine the worth of your company or a buyer considering a potential acquisition, hiring professionals for business valuation services is crucial. Also, valuing your business is important during exit strategy planning, updating partnerships, shareholder disputes, and real estate tax planning.
What is a business valuation?
As the name suggests, business valuation is the process of determining the value of a company or, in some cases, a shareholder’s minority or controlling interest in that company. It’s an in-depth analysis conducted by professionals to find the accurate value of the company.
Business valuation also identifies operational inefficiencies, areas of risk, and ways to create stronger cash flow, increasing the value of your business.
Business valuation should be accurate. Inaccurate valuation leads to several negative consequences, such as poor decision-making, financial loss, failed transactions, loss of investor confidence, legal issues, regulatory scrutiny, tax implications, and difficulty in exit planning.
Different types of business valuation methods
Market valuation methods
The market approach in business valuation compares a company to its peers in public companies or precedent transactions. The logic of market valuation is that a business will sell roughly a similar multiple to other companies in a similar industry and size.
In this method, the comparison companies are known as “comps.” Finding a set of comps that fit the subject company is very challenging. These comps are either from publicly traded companies or precedent transactions.
The data of public comps is verifiable and correct as they are traded in real time, and their financial performance is disclosed publicly. On the other hand, the data of precedent transactions comps is compiled and available through valuation service providers, allowing valuers to find comps that are more similar in size to the business they are valuing.
Income valuation method
The income approach analyzes free cash flow, discounting, or capitalizing a company based on the chosen method. In a business, cash flow is earnings metric. This covers taxes, tax breaks, capital expenditures, and net working capital change.
The second important component of the income approach is the discount rate. This shows the measurement of risk and return. The discount rate is either the weighted average cost of capital or the cost of equity.
Asset valuation method
The asset approach values a business based on its balance sheet as of the valuation date. The equation of the asset valuation method is associated with the balance sheet, which is liabilities plus equity equals assets.
The asset approach has two standard methods: the book value of the equity method and the adjusted book value of the equity method.
Benefits of professional business valuation services
Obtain the most accurate value
Professional business valuation services give you a clear idea of what the company is worth and how it has grown over the years when selling or buying it or conducting any other transaction.
Using their expertise and resources, professionals make your business more attractive to potential buyers who cannot deny its growth if accurate numbers are before them.
Better negotiations
No matter how good the deal is, negotiation takes place. But, you can put your business in the market and negotiate only if you have its true worth. Without knowing the actual value of your business, you cannot determine the asking price. You might either go too high or fail to attract potential buyers or too low and lose out of money.
During 3 decades of M&A service, Jeff Adam has successfully completed the sale of over 825 businesses and advised or completed 1,000’s of business valuations and exit plans. An entrepreneur in his own right, Jeff has started and grown 12 companies in fields including international finance, B2B services, business valuation, construction, screen printing, Mergers & Acquisitions, engineering, and manufacturing. Jeff has donated his time as a distinguished speaker at numerous national & international conferences since 1977 covering topics such as environmental services, engineering, media, craft breweries, exit planning, business valuation, charitable giving, management, business brokerage and M&A fields.
Jeff is President of Adam Noble Group, LLC, a national M&A Advisory firm, professionally valuing and confidentially selling profitable businesses owned by exit-motivated business owners to qualified strategic, corporate, private equity, partners, management, and first-time buyers. Jeff establishes rapport, builds trust, and educates business owners in the steps to meet their goals as they prepare and achieve the discreet, confidential exit of their business. Jeff exclusively represents sellers of $1M-50M value enterprises and endeavors to transfer their businesses to qualified, capable acquirers who will build upon the seller’s vision, goals, culture, and history. Jeff maintains lifelong repeat and referral relationships with sellers, their acquirers, and service providers.
Adam Noble Group has multiple M&A and business broker specialties: Manufacturing, Defense Industry, Oilfield services, Construction trades, Craft Breweries, Partnership Buyouts, Manufacturing, Service, and Wholesale Distributors.
Our M&A advisors and business brokers are all multi-industry entrepreneurs who have successfully exited their own companies. Jeff has walked in your shoes! Jeff wants to put the BIGGEST CHECK of your life in your pocket! Please contact Jeff, and he will confidentially answer all your questions.
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