When Is Business Valuation Needed?
Business valuation is the process of finding the best estimated worth of a business. A reliable business valuation then involves only the substantial principles and justifiable methods, and the additional step of finding the fair market value (FMV) of a business. The usual ways to determine FMV are the asset approach, the income approach and the market approach.
The Top 3 Scenarios For Business Valuation Are As Follows:
1. Breaking of Partnership Settlement
For various reasons, a partner may want to quit halfway and request to be out of the deal, or the others may want to absorb his share of the business. Here, a business valuation would equip both parties with the best estimated worth of the business and the leaving partner’s interest so the best decisions can be made to protect individual interests.
Families seeking a fair split amongst the members of business and assets can also use do business valuation for a smoother settlement.
2. Inheritance and Estate Planning
When there is a need to pass down or pass on or hand over privately owned business and assets, it is necessary to inform the recipients or relevant authorities of the value of these possessions, especially when taxes are involved. Hence business valuation is done to help validate the amount of transactions following the transfer of ownership.
The proper information from a business valuation will facilitate more accurate transactions and reduce wastages.
3. Buying and Selling Business
Often, buyers and sellers have a broad sense of the worth of a business, which may not be an accurate representation of the actual value. Even if their gauge of the value was near accurate, it may not be accurately represented with their inadequate skills and knowledge. From the past dealings, they would usually ignore the tangible or intangible assets or business risks; use inaccurate earning multipliers or discount factors; and miss out on more efficient ways to profit-sell non-core assets.
Hence a business valuation will give the most accurate and valid representation of the actual value of the business, which helps to negotiate the best deal and the most profits.
There are other circumstances that call for the need of a business valuation, and it is always wise to clarify with a professional. Whatever the circumstances, business valuation must be done on the grounds of valid principles and methods.
Speak with a Qualified and Experienced Valuer.