A business valuation or a company valuation is the process of understanding the value of the business. In this process of the business valuation, all aspects of a business are analyzed to assess its overall worth, and sometime the worth of its components. One can thus understand contribution of such components in the overall value, helpful to take some strategic or tactical decisions.

The three major types of valuation methodologies, commonly used for determining the economic value of businesses, are,

• Market Based
• Cost or Asset Based
• Income or Cashflow Based

Why does one need Business Valuation

Determining the value of a business serves many purposes. It is a choice one exercises while both operating and transferring the business. Getting to the purpose of business valuation does provide the right path to correctly appraise the company and will help one in defining the accurate business valuation.

When does the requirement for Business Valuation arise

May actually arise several times, but surely whenever a critical decision becomes due. When raising capital, debt or equity, the valuation plays a part. Same time, the business world is quite dynamic and there are several decisions which are helped by the thoughtful valuation.

To Get Financing

If one wants to expand capital during the good or hard times, then investor group certainly would need to be informed of the value underlying. While basic information like profit/loss, ownership, history of operations, etc are simple to be made available as well as understood, the prospects of the business and capacity to benefit the stakeholders require deeper analysis. A detailed and well construed business valuation helps in this regard, to make a stronger pitch to the investor.

To Resolve Taxation & Legal Disputes

A business valuation firm can also help rationalize the taxation part by getting the right valuation, as described under the statutes and standards. A number of disputes have their origin in the valuation of the asset/business, as two parties have their own interpretations. A professional valuation exercise usually brings the right perspective.

For Transaction to Transfer

Take a scenario if one wishes to buy an enterprise. While the seller & buyer are expected to be prudent, they may still lack the technical acumen towards converting the facts to value. A valuation exercise with a detailed account of revenue, expense, profit, assets & liabilities and the business & regulatory scenario in which company operates, helps strongly in the negotiation process. Such information can assist both the parties to settle for a fair price for the business.

Data on Partnership Dissolution

In situation where one or more partners may decide to buy out the others, a valuation does assist them in doing so at the right value. And if the process involves more than a single entity, the grown complexity requires a set of reliable values to be put on the table. The business valuation skill attains this goal.

Assessment of Specific Business

For any investor, be it a business promoter, venture capitalist, HNI, institutions, etc, with investment interest in specific business sectors, the understanding of ‘off the radar’ is as important as that of ‘going on’. No single size fits for all here. One who understand the numbers and trends and can match them is of real importance here. A professional valuation entity with specific industry knowledge and ability to understand the numbers would do the job here. It also allows one to concentrate on core business activities while experts handle valuation and due-diligences.

Negotiations in Mergers and Acquisitions

The business world is a tough one with mergers and acquisition on a growth trend. While the softer aspects may play a part, it’s the hard numbers which eventually settle the terms. It’s for the benefit of parties on both sides to have a good negotiation ground on the basis of professional valuation conducted.

Furthermore, a business valuation helps the seller to negotiate the price by demonstrating a consistent trend in value through the periodic valuation process.

Overall, the business valuation is an important decision that one can take at a strategic point and get benefitted.

Wish to get accurate and complete business valuation services? Kindly Contact Mavent Advisors Pvt Ltd. (reachus@maventadvisors.com) for more information.