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Business Valuation for Your Business? - Business Planning Group

Understanding Wealth® Blog

Business Valuation for Your Business?

It may seem counter-intuitive to get a business valuation when you are probably not ready to sell your business. Still, when you know your business value, you unlock valuable understandings for the future of your business. Knowledge about your business value gives you a big head start on major corporate events like succession or exit planning, buy/sell planning, debt or equity financing, justification of share values, tax reporting and even litigation.

When you think about your the future of your business, consider the types of business transfers that can occur:

  • Internal – selling or gifting your business to a company insider such as a family member, manager(s) or key employee(s).
  • External – selling to an entity that is not in your company now. These may include competitors, customers or even investor(s).

Business Valuation Methods

  • Market approach business valuation methods – Market approach estimates of the business value by comparing the company to recent selling prices of similar businesses.
  • Earnings or Income approach business valuation methods – These valuations determine the cash flow of the company using normalized past earnings to evaluate what future earnings may be. Those earnings are then evaluated through a capitalization factor (a rate of return that a purchaser would expect to make).
  • Asset-based business valuation methods – These types of valuations are done on a going concern or on a liquidation basis. The basic valuation methods involves understanding the business net assets (for a going concern) or net cash (in a liquidation situation).
  • Enterprise value business valuation methods – This value is the total value of the firm, all equity plus all long-term debt.

For your company, you should know the answer to the one big question, “what’s my company worth?” Business Planning Group looks forward to working with you to get a business valuation for your company.

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