Business Valuation

Valuation is the process of determining what a company is truly worth. This then serves as the basis for negotiations between buyers and sellers. It helps buyers understand the company’s financial health, future growth, and potential risks, and guides the deal overall. There are many valuation methods, and each has its own positives and negatives. A few of the popular ones are the discounted cash flow method, the comparables method, and asset valuation.

                In the discounted cash flow method, future cash flows are projected for a company. This is ideal for a company with stable and predictable earnings. For the comparable method, the company takes financial multiples such as EBITDA, gross income, and expenses, and compares them to other publicly traded companies. In an asset valuation, all tangible assets, such as equipment, computers, and real estate, along with intellectual assets like trademarks, patents, and websites, are calculated together to determine the value of the company.

                Business owners can value their company by looking at financial statements, key value drivers like customer relationships and market position, and by applying more than one valuation method to look at how their business is operating. Many owners find financial help in the form of accountants and lawyers who know what they are doing to ensure accurate and realistic market comparisons.

                Whether you are looking to take your private company public to the stock market or you are trying to sell your small business, there are many reasons to know how and why to value a company. For more information or for professional tax help, please contact The Center at (618) 997-3436.