An Unprecedented Twelve Months – Why Should a Company Get a Business Valuation Now? 

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• An Unprecedented Twelve Months – Why Should a Company Get a Business Valuation Now? 

06 May 2021

The ability to place an accurate value on your business is essential, particularly during challenging economic times, according to finance experts.

A business valuation aims to determine the economic value of a whole business or company unit. During unprecedented times like these, there has never been more of an urgency for companies to get a valuation, says Stephen Verber from finance and advisory service Alexander & Co.

Verber is a Partner and Head of Forensic Accounting at Alexander & Co. He is also a member of the Academy of Experts and specialises in corporate finance including MBOs, mergers, acquisitions and forensic accounting.

 

Picture: a photograph of Stephen Verber

 

What are the Benefits of Having Your Business Valued?

 

Not only do valuations provide businesses with a sense of assurance, Verber argues, but such an operation also allows a company to gain a better understanding of its financial assets. 

 

Understanding a Company's True Value

 

Even though you may already have a basic understanding of how much your business is worth, a business valuation will provide more concise, accurate information that goes beyond simple market data. Knowledge of this information would therefore be useful when it comes to things such as reinvesting into the company and obtaining proper insurance coverage.

 

What's Your Resale Value?

 

If you plan to sell your business in the near future, then knowing how much your business is worth will certainly help you to achieve this goal. As a rule of thumb, the valuation process should be conducted before your company goes up for sale. Doing this will allow you to increase the total value of your business and sell for a higher price. When it comes to negotiating a selling price, be sure to use the concrete data provided by your valuation to justify the higher price you intend to sell for. 

 

Easier Mergers and Acquisitions

 

Simply put, having access to business valuation data will increase the chances of your company being taken more seriously by investors. This is because you have a wealth of detailed information to provide to your interested investors. For instance, when it comes to negotiating a higher selling price, you can refer to the total value of your business and its growth over time to obtain the offer you desire. 

 

Accessing a Broader Range of Investors

 

Whether you plan to acquire additional investors to contribute to your company’s growth or save your business from a financial crisis, it is best practice to provide your investor with a full business valuation report. An investor is more likely to commit to your business if they can see that their funds will increase your business’ value, as well as provide themselves with a good return on investment. That said, the critical information provided by your report will certainly influence their decision here. 

 

Reveal an Organisation's Weaknesses

 

Finally, another great thing about a business valuation report is that it can help your company identify its weaknesses as well as strengths. Knowing about weaknesses is especially important when it comes to putting your business up for sale, as you will be aware of what to work on before the buying process commences. A business valuation can also reveal any potential future problems you may encounter with your business. So, it’s important to be prepared and plan for what’s to come. 

 

How is a Business Valuation Calculated? 

 

When it comes to valuing a business, companies can perform either one of the following three options:

 

1. Asset-based valuation – This method takes into account the total value of products and raw materials that the business owns, including intangible assets such as branding. The total of all these assets put together gives an asset-based valuation of the company. 
2. Your future expected revenue and costs – This type of business valuation is more of a complicated method and can typically take up to 3-5 years. The method involves looking at your expected net profit and companies will run the forecast for a period of time. 
3. Analysis of comparable companies – This more simple approach is based on looking at similar companies to your business that have recently been sold on the market. Doing this will allow you to get an idea of the actual value of said company and compare it to your own. 

 

Ultimately, the effectiveness of a business valuation is dependent on the company that is performing it. So, be sure to do your extensive research and find a skilled business valuations team.

Picture: a photograph of a person holding an iPhone, using the calculator function

Article written by Stephen Verber | Published 06 May 2021

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