Business Valuation Services

Business valuation services refer to the act of evaluating the market value of an organization or business. The calculation of the value is done based on assets, liabilities, expenditures, and income. A detailed analysis gives stakeholders insights into how to maximize the potential of the business based on its performance metrics.

However, the reason companies are okay with incurring business valuation services costs is that it gives them an idea of factors such as risks and growth potential avenues. These calculations and valuations are done by a professional appraiser, who collects all relevant data and submits a detailed report.

Business valuation or company valuation is the procedure through which the economic value of a company is determined. A professional appraiser evaluates each facet of the business, as in each department and function, to evaluate each of them individually and cumulatively.

Companies opt for physical or online business valuation services for a variety of reasons, such as taxation, sale value, partner ownership establishment, or divorce settlements.

This process mainly commences when a company is looking to put a part or the whole operation up for sale, or if they want to merge with another company, or if they are looking to acquire another business.

The process also includes the analysis of the entity's capital structure, management, future earning potential, and current market value of its assets. The tools to measure these facets of a business differ based on the nature of the business, evaluators, and scale of the business as well.

However, standard methods of valuation are reviewing discounting cash flow and financial statements and comparing similar companies with the subject company. Moreover, the reason for valuation is also for the all-important function of tax reporting. The Internal Revenue Service (IRS) insists that companies be valued at fair market value.

A few of the most common scenarios where large or small business valuation services are required are mentioned below.

• Acquisition: When a business wants to take over or purchase another company, there can be unrest around how much the company is worth. Therefore, the buyers would surely want to determine its fair market value to make sure they do not end up paying extra for a company that might not even be worth the sum.
• Fundraising: Irrespective of raising funds through debt or equity, the economic worth of the company is the foremost value an investor or a banker would be interested in. Therefore, an impartial valuation by a professional appraiser would be a great place to start the fundraising process.
• Tax Reporting: The IRS wants to ensure that the companies are being taxed based on their fair market value and not otherwise. Therefore, companies make sure that a fair valuation is made to take maximum advantage of the tax benefits according to the tax slabs.
• Exit Strategy: One of the most critical scenarios in which the valuation of an entity comes into play is when the owners want to plan their exit. In these situations, the initial valuation acts as a benchmark that helps the owners understand their current standing to ensure they put a fair price tag and plan their exit accordingly.

Professionals or different occupations might claim to provide their services at a minimum business valuation services cost. However, these professionals must have at least one of these qualifications to be a reliable source of valuation:

• Accredited Senior Appraiser (ASA)
• Certified Valuation Analyst (CVA)
• Certified Business Appraiser (CBA)
• Accredited in Business Valuation or ABV provided by the American Institute of CPAs (AICPA)

Different appraisers use different methodologies based on the nature and size of the business. A few of the most common ones are:

• Return On Investment: Based on a business's profits and the projected ROI that an investor might recoup from their investment, this method of valuation is curated. Based on the business valuation approach, the ROI can be used to determine the value of the company.
• Market Cap: Market capitalization is the most straightforward approach to find the economic value of a company. It is calculated by dividing the per-share price of the company by the sum of the outstanding shares.
• Book Value: It refers to the shareholder's equity in the company as per the report on the balance sheet. The book value can be achieved by deducting the liabilities of the company from the value of its total assets.
• Discounted Cash Flow Method: The DCF method and earnings multiplier method are comparable methods of valuing a business. The calculation is done based on the projection of the cash flows the business is expected to have in the future. It is then compared and calculated to find the current value of the company.
• Liquidation Value: It refers to the amount of money that would be left with the company after all liabilities and assets are squared off. The liquidation value can be most suitable for small business valuation services as more prominent companies have a slightly more complicated valuation criterion.

The concept can be understood in further depth when a tinge of practicality and real-life application is brought into the picture. The examples below are an attempt towards that.

Example #1

Infinity Enterprises (IE), a manufacturer of calculators and remotes, was established in 2010. Its founders, Kurt and Emily, decided to move on from the company towards opportunities with less stress.

They also had prospective clients waiting to purchase the company. However, they wanted to make sure that the fair market value was ascertained before quoting the price for IE. A professional appraiser came on board and gathered all the data to find the economic value of the company. The appraiser chose the liquidation value method as the company has a simple structure.

Based on the findings, the company had liabilities worth $150,000. The assets under the possession of the company, including the plant, properties, inventory, and account receivables, amounted to $900,000.

Therefore, the company is worth $750,000. Additionally, their order book was full of orders worth $500,000. Therefore, that was also added to the tally, and the company was sold for $1.25 million.

Example #2

The Indian Premier League (IPL), the largest franchise cricket tournament in the world as a business enterprise, was valued at $10.9 billion in 2022. However, in 2023, D&P Advisory conducted a secondary valuation to find that the tournament's valuation rose 3.3% to $11.2 billion.

60-65% of the revenue is accrued to the governing body that overlooks all operational and developmental aspects of cricket in India – The BCCI. The remaining 35-40% is shared among the teams. Given that the tournament has ten teams, each franchise is valued at about $390-450 million. These stats make the tournament the biggest in the world with no close second.

Despite the importance of offline or online business valuation services being mentioned throughout the article, the points below show the specifics in more detail.

• Estimating the economic value of a business can help the stakeholders gauge the gaps in their business. These gaps allow them to assess the risks and potential growth opportunities as well.
• Assessing the value of the entity allows the management to estimate their tax liability.
• For mergers & acquisitions (M&A), a valuation helps the company find its actual value according to the current market prices. Therefore, the act of merging with another company or acquiring it can be more efficient.
• It also gives the owners a detailed overview of the resale value of the company.
• For owners or promotors looking to move on to other things in business or life, it shows the best possible exit strategy as well.