For business valuations to go well, it’s important to understand your company’s financials. So, dive deep into your balance sheet and cash flow statement. You may have to work with a financial expert. Advisors at Profit Management Solutions LLC, a Florida-based consulting firm, understand valuations all too well.
Another thing is to make sure you’re using the right valuation method for your business. Think about all the options out there. Income, market, and asset-based approaches work differently for your valuation. So, do your homework and pick the right one.
Remember to factor in intangible assets. An accurate valuation looks at how much your brand recognition and intellectual property are worth. And it doesn’t end there; customer loyalty is valuable too. While these things may not be part of financials, they move your business forward and boost the bottom line.
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Conduct Audits
According to Anthony Cavaluzzi, a business consultant and entrepreneur, audits are necessary when valuing a company. You wouldn’t want to present numbers without making sure they’re correct. No merger or acquisition can go ahead if everyone’s in the dark about finances.
But audits do more than just provide accurate financial information. They show you where you need to improve operations or controls. So, they might seem like a hassle, but they’re good for business.
Document Your Processes
Having documented processes is a sign you run things efficiently. Investors and other parties can look at your business favorably. Moreover, others can understand how your company works.
Another thing is that anyone looking at the documents can identify the company’s strengths and weaknesses. That way, it’s possible to correct things and make everything work better. Best of all, profits can shoot up.
Asset-Based Approaches
This valuation method takes into account things like property, equipment, and inventory. It’s straightforward, but Cavaluzzi says what you see may differ from what you get. Accuracy isn’t 100%.
Be that as it may, the method still has its uses. It can provide better results when valuing a company with many physical assets worth a lot of money.
Earning Value Approaches
With this one, you figure out how much a company is worth by looking at its income. Doing so makes it easier to know the true value of a company. Anthony Cavaluzzi recommends using the discounted cash flow method. To do this, you consider the company’s anticipated future cash flows.
Another way to get an idea of how much a company is worth is by using the price-to-earnings ratio method. It lets you compare a stock price with earnings per share.
Market Value Approaches
This method provides a rough idea of a company’s value by focusing on a prevailing market price for the business. So, you set the value after considering how much buyers and sellers could agree on.
In fact, you look at it this way. Find out the amounts paid for companies like yours. For a more realistic estimate, only look at recent transactions. But the downside of this method is that it only provides part of the picture.
About
Anthony Cavaluzzi founded Profit Management Solutions LLC to help entrepreneurs find answers to key business questions. The business professional holds a bachelor’s degree in business and an MBA in corporate finance.