Every organization needs to know the value of its assets. This could be traditional assets or it could be intellectual property or customer and supplier relationships. It could be technology or the know-how about the domain in question. In order to be regulatory compliant, all companies, whether public or private need to evaluate and assess the fair value of recorded goodwill and identifiable intangible assets from time to time.
However valuating business requires the understanding and the analysis of a number of complex factors. This includes detailed technical knowledge of value drivers and in-depth industry knowledge.
There are several reason why a business needs to assess its value. For example, for Employee Stock Option Plans, the IRS rules dictate that you need an annual business valuation report. Or if the company is in negotiations for mergers or acquisition then a business valuation report should take place. Another reason could be if the company is looking to partially buyout a business. Also remember that Business Valuations are required for Estate and Gift Tax. You will need your business valuation when you make a buyer/seller agreement. You will also need a business valuation report when making shareholder agreements.
As you can see, business valuation is needed for many business related items.
So let us take a look at the process of Business Valuation and see what it is about.
Business valuation is a process. It involves a set of procedures that are used to estimate the economic value of an owner’s interest in a business. Business valuation is used by financial market participants to determine the price they are willing to pay or receive to perfect a sale of a business. There are several firms that provide this service of evaluating your business value.
Here is a brief description of what these firms do.
Along with looking at business or equity valuation, these firms also look at swap ratios. Fixed asset valuations is done in the context of transactions and restructurings. They also perform portfolio valuation for private equity funds. In addition to the above, these firms also do purchase price allocations for the fair value of assets (tangible/intangible) and liabilities that have been acquired consequent to a transaction. An important component of business valuation is the valuations of intangible assets like brands, technology, contracts, human resources, etc. This helps assist in fund-raising, financial reporting purposes or internal strategic decision-making. Another important function is the valuations relating to specific products or industries. Valuation is mandatory for several regulatory purposes and the firms ensure that it is done. The business valuation services firms perform valuations for dispute resolution/court/company law board matters. The also perform strategy related work, such as development/review of business plans, entry/exist strategies, etc.
It is important to use the services of a business-valuating firm since they offer valuation services to meet client specific needs. They help in the identification and valuation of intangible assets. These firms tend to have experience in purchase price allocations across a broad range of industries. This includes the gamut of industries from financial and professional services, technology, media and communications, manufacturing, natural resources, distribution and retail, healthcare, hospitality, and to waste management.
Before you engage the services of a business valuation firm ensure that the firm comes with good references.