Business
Valuation Methods
Placing
a value on a company is a complex procedure. The
methodology can vary depending on the type of
business and the reason for the valuation. There
are a wide range of factors that go into the process.
From the company's book value to a host of tangible
and intangible elements, the appraiser must consider
all the relevant facts. In general, the value
of the business will rely on an analysis of the
company's cash flow. In other words, its ability
to generate consistent profits will ultimately
determine its worth in the marketplace.
Business
valuation should be considered a starting point
for buyers and sellers. The more informed the
parties in a transaction are, the better the likelihood
of a good deal. Of course, each party has different
motivations, but fair market value is the price
a seller will accept and a buyer will pay.
George
and Company offers a variety different professional
business appraisal services. Our appraisal services
can cost from $1000 to $10,000 and more, depending
on the size and complexity of the business to
be valued. Expert testimony can also be provided.
Christopher George has qualified and testified
as an expert in most State and Federal jurisdictions.
Be aware that most states have no licensing procedure
for business appraisers, so you may need to look
for independent accreditation such as that done
by the American Society of Appraisers, the Institute
of Business Appraisers or the Society of Certified
Business Opportunity Appraisers.
Here
are some of the common methods used to arrive
at a business value. Return
to top
-
Asset valuation
-
Capitalization of income valuation
-
Owner benefit valuation
-
Multiplier or market valuation.
Asset
Valuation
Asset
valuation is used when a company is asset-intensive.
Retail businesses and manufacturing companies
fall into this category. This process takes into
account the following figures, the sum of which
determines the market value:
-
Fair market value of fixed assets and equipment
(FMV/FA)- This is the price you would pay on
the open market to purchase the assets or equipment.
-
Leasehold improvements (LI) - These are the
changes to the physical property that would
be considered part of the property if you were
to sell it or not renew a lease.
-
Owner benefit (OB) - This is the seller's discretionary
cash for one year; you can get this from the
adjusted income statement.
-
Inventory (I) - Wholesale value of inventory,
including raw materials, work-in-progress, and
finished goods or products.
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