It’s An Important Tool To Support Your Business
Updated: Jul 28, 2020
Most often, business owners and executives consider initiating a business valuation when they are considering the sale or purchase of a business or exploring a merger. In order to strike a fair deal, understanding the current worth of a company or a division of that company, is essential.
But there are other reasons to do a periodic business valuation too. Banks and finance organizations will rely in part on such a report to understand a company’s worth when considering a loan for an equipment purchase, operating capital, debt relief, and other uses. Knowing what a company is worth will help owners and executives establish a basis for equity compensation for new partners or key employees. It’s an important tool for tax reporting where the IRS requires a fair market value disclosure or for tax-related events like a sale, gifting of shares, etc. A business valuation could be used for divorce negotiations as well. And more.
Of course, it’s important to understand that there are various ways to value a company. A valuation can be based on market capitalization, a times revenue method, on an earnings multiplier, on a discounted cash flow method, on book value, on liquidation value or on a variety of these factors considered together. Determining how to value your company would be based on various factors, including but not limited to the purpose of the valuation, the industry and nature of the business, etc.
There are other variables as well. A thorough valuation analysis will consider not just the present value of current cash flow, but all forecasted future cash flows, assumptions regarding sales growth, profit margins, financing and the cost of that financing, capital expenditures, tax rates, net operating income & projected income, and other “assumptions”.
Based in Arcadia, California and serving all of Southern California, at Norm Blieden, CPA, we have the tools and experience to provide most companies with a valuation that can be used effectively for a variety of purposes and to support business operations and growth.
Or for more information, please call Norm Blieden at 626-440-9511.
Or email him at: firstname.lastname@example.org