When it comes to evaluating the fair value of your business, a number of steps are being followed up. Form planning and preparation for reaching the business value conclusion.
There are several ways to value the key aspects of a business to arrive at a final figure. The five major steps of this process are:
1. Planning and preparation
Effective business valuation requires planning, disciplined effort and attention to detail. The process of business valuation depends on two key elements, which are, how you measure business value and under what circumstances. These elements are known as the standard of value.
You should start by assembling all the required information. Once you know how and under what conditions you will measure your business worth, it’s time to gather the relevant data that impacts your business value. This may include operational procedures, financial statements, marketing and business plans.
2. Adjusting the historical financial statements
Company financial information provides key inputs to the process. Income statement and balance sheet are the two main financial statements you need for business valuation. When it comes to valuing the business, an accurate affirmation of the complete business earning potential is necessary. This is to find an accurate relationship between the required business assets, expenses and the amount of business income these assets are capable of producing.
3. Choosing business valuation methods
Once your data is prepared, it is time to choose the business valuation procedures. There are a number of methods to determine business value. You should use several of them to your results.
Major business valuation methods are:
1. Market value based business valuation method
2. Asset based business valuation method
3. ROI based business valuation method
The set of methods you choose to determine the value of your business depends upon different factors. Such as complexity of the company’s asset base, business earning history, debt and equity. You must have detailed knowledge about business valuation methods before choosing.
4. Applying the selected business valuation methods
Now when you have assembled all the relevant data and made a choice for business valuation method, calculating your business value should produce accurate results. The reason you should choose several business valuation methods is to cross check your assumptions. You can use business valuation calculator. This will help you to determine the business value by automating complex calculations and will let you adjust your assumptions with different valuation scenarios.
5. Reaching the business value conclusion
Finally, with the results from the selected valuation methods, you can determine and make a decision about the worth of your business. This is known as business value synthesis. You may have to decide your business worth by using several results from various methods to form an opinion because no valuation method a definitive answer.