Business Valuation: Why engage Baker Tilly for your business valuation?
Business Valuation, is the process of determining the economic value of a company.
During valuation process, every area of the business is analyzed thoroughly to determine how much the company is worth.
Baker Tilly Kosovo conducts business valuation for owners, potential buyers, investors, etc. We can be your trusted partner in valuing your company depending on your needs for such engagement.
Business owners may request a valuation for different reasons; however, we will list six reasons why you should engage Baker Tilly to perform a business valuation for your company:
Business valuation can help business owners decide their near- and long-term strategies of their company. This information can help business owners plan their strategy in deciding if they need to sell, expand the company or go in another direction. Such valuation may lead to growth and success in the future.
Exit Strategy / Plans to sell
If/when you are planning to sell, the best way to set a baseline for the value of the company is to make a business valuation. Such valuation can help you make an informed decision about whether to sell and what a reasonable asking price may be to a potential buyer
How much should an investor pay to buy a percentage of your company? This depends how much the company is worth. A business valuation should be made for your company to set up a price in order for potential investors to buy a percentage of the company.
Partnership Changes / Buying and Selling Agreements
If you have a partnership type of company or an llc buy-sell agreement can help avoid future disputes business partners can have with each other. An outside business appraiser can make a business valuation would be a mutually agreed upon value as a starting point for an agreement that is acceptable to all parties.
Shareholder buy-outs happen frequently, due to different types of reasons. Disagreements between shareholders, retirement, divorces, etc. The buy-outs can always arise disagreements between shareholders who may feel they are receiving too little or they are paying to much for the transfer of shares, even though a buy-out agreement exist. A business valuation helps mitigate such problems that the shareholder might encounter, since the valuation is made by a independent appraiser.
Financing institutions may require a business valuation to approve a loan that businesses have requested. Typically, financial statements are presented at a historical cost. A valuation will provide the bank with fair market value amounts that can support a loan.
In the event of a business transaction (i.e., merger, acquisition, sale, etc.), the purchaser and the seller need to record the sale correctly. Inconsistent and inappropriate allocation of the purchase price may increase tax liability and even penalties. A valuation will consider the differences in business goodwill over personal goodwill and the various state laws applying these transactions and calculations.
There are several methods to do a business valuation
Below, we have presented a list of the methods that are used in business valuation
Times Revenue Method
The times revenue method is a valuation method used to estimate the value of a company by multiplying its current revenue by a factor. The factor is based on the company’s industry and growth rate. This method is commonly used for companies that have not yet turned a profit, such as young start-ups. To calculate the value of a company using this method, simply multiply the company’s current revenue by the appropriate factor.
The earnings multiplier is a business valuation method that uses the company’s earnings before interest and taxes (EBIT) to determine its value. To calculate the multiplier, you first need to determine the company’s EBIT. This can be done by subtracting the company’s total expenses from its total revenue. Once you have the company’s EBIT, you will need to multiply it by a number that represents the market value of similar companies. The earnings multiplier is a quick and easy way to value a business, but it does have some drawbacks. First, it relies on the accuracy of the company’s financial statements. If the statements are not accurate, then the multiplier will not be accurate either. Second, the earnings multiplier only takes into account one aspect of the business – its earnings. It does not consider other factors such as the company’s debt levels, growth potential, or competitive landscape. As a result, the earnings multiplier should be used in conjunction with other valuation methods to get a complete picture of a company’s worth
Discounted Cash Flow (DCF) Method
The DCF method of business valuation is similar to the earnings multiplier. This method is based on projections of future cash flows, which are adjusted to get the current market value of the company. The main difference between the discounted cash flow method and the profit multiplier method is that it takes inflation into consideration to calculate the present value.
One of the most straightforward methods of valuing a company is to calculate its book value using information from its balance sheet. Due to the simplicity of this method, however, it’s notably unreliable. To calculate book value, start by subtracting the company’s liabilities from its assets to determine owners’ equity. Then exclude any intangible assets. The figure you’re left with represents the value of any tangible assets the company owns.
Liquidation value is the net cash that a business will receive if its assets were liquidated and liabilities were paid off today. This is by no means an exhaustive list of the business valuation methods in use today. Other methods include replacement value, breakup value, asset-based valuation and still many more