Valuations are useful in a number of situations, the most common are:
- Calculating estate values after a death.
- The splitting up of assets in a divorce.
- Negotiating the purchase/sale value of a business.
The general purpose of carrying out Business valuations is to calculate the monetary value of a business.
There are different methods for valuing a business, an example of some of these are:
- Assets Approach – The value of the business is the value of assets after paying off liabilities.
- Discounted cash flow method – Value is based on the Net Present Value of projected cash flows available for distribution after taking into account cash required as investment for creating growth. A discount rate will also be applied taking into account the cost of equity.
Business Valuations can also be a very useful management tool, it allows management to measure the progress of growth and it highlights areas where improvements can be made. This is common practise in the area of property.
When getting your business valued the two most important areas to note are:
- Tangible Assets i.e. Land, Plant & Machinery, Furniture & Fittings, Trade Debtors etc.
- Intangible Assets i.e. Goodwill, Distribution Rights, Physical location, Name recognition etc.
It is important to make sure that the valuation is carried out by an experienced professional, an inaccurate valuation whether it be too high or too low can have negative consequences for the seller, for example:
– An investor may see that the business is valued too high and not show any interest.
– Or If valued too low an investor may notice this and take full advantage.
When carrying out valuations we make sure that we:
- Assure quality.
- Carry out any necessary due diligence.
- Adhere to ethical standards.
- Work with care and thoroughness.