The modern world is filled with thousands of opportunities to grow and prosper. Owning a business has suddenly become the best career choice for many. The technicalities that are involved with a business can cause massive chaos and confusion if you do not have idea about the business. It is advised to collect information about the little things that matter while owning a business.
One of the most crucial things that matter for any businessman is to know the current valuation of his business or in technical words “Business Valuation”. This is an easy to go term in the corporate world and the role of Business valuation is heightened in case you are planning to sell your business. Business Valuation gives you the realistic value of your business along with a detailed overview that compels the buyer to pay as per as the valuation of your business.
What is Business Valuation?
The question looks quite simple and so is the answer, Business Valuation helps you determine the economic value of the business you own. Valuation of your business is an important step in case of sale or raising funds. The Corporate sector all over the world usually takes the services of Business valuators to get valuation of their business.
Benefits of Business Valuation
- Protects the value of your business – gain a strong position when negotiating a sale
- Helps in identifying the weaknesses in the business, which can help to focus on improving those weaknesses
- Enhance performance of the business
- Manage Tax transactions competently
Need for Business Valuation
This has become the most common reason why entrepreneurs opt for Business valuation. This can help the business to raise funds from external sources in order to scale the business and to take it to new heights.
During Business Exit:
Some businesses also consider valuing their business when they are planning to sell their business. They are interested to understand how much their business worth in the current market is.
How it is done?
Common approaches used for Business valuation are listed below –
This method takes into consideration the Assets and Liabilities of the Business to determine its value.
Seems simple but the challenge is to understand which assets and liabilities to consider in the valuation.
The income based method covers all the income that your business generates along with the risk involved. This is considered more effective means of valuation as it involves the current processing of the business and also the projection over a future period of time but at the same time discounting this future income at its present time value to determine what it is worth today.
This method involves the current market value of all the assets. Market based valuation involves comparing the business with the recent selling price of somewhat identical business.
However, the ideal Business Valuation will be what the Buyer is willing to pay for the business and what the Seller is willing to accept.