Business Valuations

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Business Valuations

You’ve worked so hard to build your business, and when it comes time to sell you will want to make sure that you get the most accurate business valuation. Valuation in business can be a tricky affair and it takes an expert to do it properly.

If you are looking to sell your business, or just want to find out the business value, then you will need to go through the proper valuation process. Your business is a valuable asset so when you are ready to sell, it is crucial to find an experienced, trustworthy business valuation organization to provide you with reliable results.

What Is Business Value?

Business valuations set out to find how much a business is worth. That is to say the economic value of the owner’s interest in the business. The value of a business is used to determine its selling price. While this may seem like a straightforward idea, there are many different factors involved. 

When doing a business valuation report, things such as cash flow, asset value, market value, and the future potential of the venture need to be taken into consideration. The valuation process is a complex process that differs depending on the particular market and industry sector. The process needs to be done by professional business valuation experts in order to achieve an effective result. 

Business Valuation Services

Business valuations are important for any entrepreneur to understand. They help to determine how much a company is worth for both current and future owners. Whether you are looking to sell your business, or just want to understand its current worth, you will need to deal with professionals to get an accurate result.

Get in touch with WA Business Valuations for more information on the various types of valuations and how we can help you. We offer a comprehensive approach towards business valuations that are confidential, accurate, affordable, and fast.

If you are:

  • Purchasing a business
  • Taking over a business
  • Selling or handing over the reins
  • Separating assets as a result of divorce or dissolution of partnership
  • Wanting to comply with tax or accounting standard requirements
  • Securing finance or venture capital
  • Assessing how your business is going
  • Exploring mechanisms for Buy/Sell on death plans
  • Requiring benchmark reports to compare your performance with your peers
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Calculating The Value Of A Business

Business valuers generally agree that the first step of finding a business’s worth is by determining the Seller’s Discretionary Earnings (SDE). The SDE is the income of the business before tax. This excludes any expenses that can be expected in the future. This can be calculated through the history of the company.

The SDE is then multiplied by the “SDE multiple”. This is generally around 4 or 5 – thereby predicting the income that the business will generate over this period. Finding the multiple can be a challenge, as many different factors can affect this. These include geographic trends, industry outlook, the size of the company, the company’s business assets, owner risk, and others.

While the SDE  looks at the business earnings, there are also the company’s assets to consider. Assets can include equipment, stock, intellectual property, and anything else of value. These can be tangible and intangible assets. Then there are the liabilities that need to be subtracted.

Factors That Influence The SDE Multiple

Valuing a business is a process that involves numerous steps – something that differs with each company and industry. Determining the SDE multiplier can be challenging as there are numerous aspects that can affect it. Besides the tangible and intangible assets, some of these factors can include:

  • Financing eligibility
  • Customer loyalty
  • The longevity of current employees
  • Supplier relationships

Methods Of Business Valuation

Business valuations can take several different approaches. These depend on the industry and individual circumstances. However, there are two main methods often used by analysts: the discounted free cash flow method and comparable transactions method.

Discounted Free Cash Flow Method

This business valuation method looks at the amount of cash that the business generates and determines an estimation of the kind of money the business should make in its lifespan. Prospective buyers will be interested in the potential earnings of the business and so they base the worth on this factor. 

To predict the future cash flow of a business, analysts need to look at its financial history and growth patterns. Things like investment plans, expenses, and the economic structure of the company will also influence future financial projections. It is important to compare this with a full analysis of the relevant market and competition. 

Basically, the discounted free cash flow method seeks to determine the kind of future income that stakeholders can expect from the business. Generally, this is considered over a 4 – 5 year period.

Comparable Transactions Method

When valuing a company, this approach is quick and simple. But, there is more room for error if conducted incorrectly. This method is usually based around the assumption of what the business will be worth under the new business owner. This is done by creating projections based on future expectations. 

Other Methods

Figuring out the potential earnings based on a business’s past is the most common approach towards valuation. Yet, there are other methods that one can follow to determine a value. These can fall under an asset-based approach or a market-based approach. 

An asset-based approach simply adds up the business tangible and intangible assets, then subtracts its liabilities. A market-based approach looks at the recent value of comparable businesses within the same industry and draws a valuation from that. All of these different business valuation methods have their advantages and disadvantages.

At WA Business Valuations, our specialists can assist in all types of business valuations. From simple, affordable business assessments to detailed forensic analyses, we can help business owners to see the value of their businesses.

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