One of the best reasons to obtain a business valuation is to use it as a management tool. A prime objective for every business is to improve its value to the owner. A properly prepared business valuation provides an insight into company strengths and weaknesses that affect value, allowing management to more effectively focus its energy on areas that really count.
Knowing the value of your business is essential to your peace of mind. A high level of emotion is present in virtually every business valuation engagement because something of great value is at stake for the owner of the business. The value, or worth, of an interest in a privately held business is usually unknown because there is no active market on which to sell or trade that interest.
Establishing an accurate assessment of value for any business requires in-depth, specialized knowledge. This requires performing solid, defensible valuation procedures and successfully communicating with the client and/or his or her attorney. Reliable valuation expertise is required since the business valuation report and presentation of the information in the report is heavily scrutinized. Engaging a qualified business valuator will give you confidence, peace of mind and the advantage of knowing you will receive a complete and accurate product.
What is a business valuation?
A business valuation involves arriving at an opinion of value of an ownership interest in a company.
What are some of the reasons to value a business?
- Estate and gift taxes
- Succession planning
- Buy-sell agreements
- Sale of a business
- Mergers and acquisitions
- Divorce—business or marital
What steps are essential to the business valuation process?
- Defining the purpose and proper standard of value
- Gathering financial information and other data, including industry comparisons and local economic analysis
- Analyzing financial information, including assessment of current value for tangible assets, unrecorded liabilities, excess compensation, etc.
- Developing proper capitalization and discount rates
- Defining earnings and selection of the appropriate valuation approaches and methods
- Applying premiums and discounts, if applicable, and arriving at a conclusion of value
- Preparing the written report
What is a CVA and why should you engage a CVA to perform your business valuation?
The Certified Valuation Analyst (CVA) designation is a statement to the business, professional and legal communities that an individual is qualified, through academic and practical experience, to meet the high standards and professional expertise required in providing valuation services.
What to look for in a business valuator:
- Professional experience in business valuations
- Reputation, trust and confidentiality
- Specialized training in business valuations
- Certification as a valuation analyst