Business valuation is used during the reorganization, development of an enterprise, liquidation, the issue and placement of shares, and the purchase or sale of a company. Therefore, it is an important tool for effective enterprise management. So, what are the business evaluation benefits for a company?
What is a business valuation: principles and objectives of the procedure
One of how the business owner controls the management of a company, provided that the company being managed is not listed on the stock exchange, is the continuous evaluation of the business, reflecting the effectiveness of the management of the company by top management. Valuation also plays an important role when buying or selling an asset or other valuable item that can be valued and formed into a subsequent purchase or sale price of this product.
Business evaluation is a set of actions that a professional appraiser performs to provide a reasonable opinion on the value of the appraisal object on a certain date in monetary units. The expert analyzes the enterprise’s financial, organizational, and technological activities, examines the dynamics, and draws conclusions about the development prospects and positions among competitors.
A business valuation helps to form a development strategy, optimize the asset management policy, ensure the sustainability of current activities, and increase investment attractiveness and competitiveness. The results of the assessment push for sound management decisions. No major transaction, whether the purchase and sale of property, asset insurance, dispute resolution, or loan processing, can do without a professional look from the outside. Following an authoritative opinion based on real numbers and calculations is a guaranteed guarantee of success.
How is business valuation done?
Qualified experts carry out the valuation of the company’s assets. However, preparation is required to draw a competent and reasonable conclusion. Estimating the value of an enterprise consists of several stages, from acquaintance with the business to mathematical calculations:
- Preliminary stage. The appraiser and the customer agree on the scope, terms of work, and price. The expert studies the enterprise and its activity specifics and immerses itself in the market segment.
- Starting stage. The appraiser visits the site, receives the necessary documentation, studies the papers, as well as open sources, the media, and databases, and accumulates information that will subsequently form the basis of the calculations.
- Analytical stage. The expert conducts market research, analyzes the company’s previous economic activity, and predicts development prospects, considering factors that may affect it.
- Key stage. The appraiser proceeds step by step with the calculations. He determines the price of the enterprise’s real estate and movable property and proceeds to assess the value of intangible assets. Further, he examines financial performance indicators and balance sheets and determines profitability and liquidity. In the end, he calculates the capitalization level and concludes the enterprise’s general financial condition.
The final figure is based on multi-day analysis and rigorous calculations. The professional is obliged to study “tons” of documentation. These are founding documents, financial statements for several years, auditors’ opinions, a detailed report on the company’s debts, if any, and many other papers. The final report is prepared adjusted for the current state of the market environment. In his work, the expert has the right to be guided by different methods of assessing the value of the business. Therefore, modern auditing companies use virtual data rooms to automate evaluation procedures.