What is a business valuation needed for?

What is a business valuation needed for?

Business valuation is a general process of determining the economic value of a business for different purposes. We need to determine a company’s fair value when there is a crucial moment for the business, like when the business or part of shares are sold, during the reorganization process, partnership ownership, litigation, and even for succession planning and divorce proceedings. Briefly about the purposes:

Sale & reorganization - Knowing exact value of business is crucial, when restructuring your company, closing, or selling it. Business valuation will help you sell your company with the fair value and helps you effectively distribute assets when closing / reorganizing your company.

Asset protection - Company assets can be effectively protected in a case of taxes, legal issues, death/divorce of partner, when you exactly know its true value. 

Borrow money - At some point you may face some difficulties, require some financial support to survive or achieve some goals and decide to take a business loan. Some lenders may ask for a business valuation before approving a loan.

How does a business valuation work?

Knowing an accurate value of your company is essential part for the current and future financial well-being of a business, It also crucial part for future exit strategies. While evaluating the business, one must consider standard principles and approaches of an assessment process.

Professional business valuation is based on several principles. Let’s discuss some of the most important ones:

-Value of the Business as a Point-in-Time Metric – Value of your company changes daily because of the changing factors such as market trends, fluctuations in earnings and working capital and so on. Thus, a business value needs monitoring on regular basis. 

- Expected profitability – The value of your business is mainly based on future earnings expectations and not on the performance of the business in the past. There are plenty of businesses without tangible assets, their value is in the cash flow, which well above the costs of running the business.

- Expected Rate of Return – Rate of return will differ and it will encompass financial costs and risks connected to the specific industry as well as company itself and general conditions on the market. 

-  Tangible Assets – Underlying net tangible assets will impact the price of the company, as an investment will hold lower risk since, in case of bankruptcy, the business has more assets that can be liquidated.

There are several approaches to assessment of the company, such are asset approach, income approach, and market approach. These approaches are furtherly divided into methods of business valuation. 

Some of the methods for business valuation are:

The Market Value Valuation Method
The Asset-Based Valuation Method
The ROI-Based Valuation Method
Discounted Cash Flow (DCF) Valuation Method
The Capitalization of Earnings Valuation Method
Multiples of the Earnings Valuation Method
The Book Value Valuation Method

What do we offer?

We tailor our business valuation service under the specific needs of our clients. Our team will use appropriate approach for every individual business based on your needs and specifics of the market.

Our valuation report provides some overview regarding industry, economy, along with the inputs and assumptions which supports our valuation conclusion.

The Financial laboratory team consists of members with fundamental understanding of business valuation in general, along with deep industry, service, and geographic expertise.

Our service and approach

Finlab is a great choice, if you are searching for a company to assist you with the business valuation service.

With an international practice and strategic location here in Tbilisi, Georgia our professionals are ready to provide quality service and ensure to fulfill all your business needs.

Our experts have the experience to satisfy any business or asset valuation needs. There is no complex valuation issue that we have not faced and prevailed.