A business valuation is the process of examining various economic factors of a business using predetermined formulas to assess the value of the business or an owner’s interest in a company. Business valuations may be conducted to provide an accurate snapshot of the company’s financial standing to present to current or potential investors. The Internal Revenue Service requires that a business be valued based on fair market value. Rink & Robinson PLLC, provides consulting and a variety of processes involved in the valuation process.
The five most common ways to value a business are:
• Asset valuation
• Historical earnings valuation
• Future maintainable earnings valuation
• Relative valuation (comparable company and comparable transactions)
• Discounted cash flow (DCF) valuation
An accurate business valuation is one of the most important aspects of a merger, acquisition, &/or buy/sell. Valuations like these will have a major impact on the price that a business will be sold for. Most often this information is expressed in a Letter of Opinion of Value (LOV) when the business is being valuated for interest’s sake. There are other, more detailed ways of expressing the value of a business. While these reports generally get more detailed and expensive as the size of a company increases, this is not always the case as there are many complicated industries which require more attention to detail, regardless of size.