Business Valuation Explained
Value is an opinion, not a fact, an estimate of an individual’s perception – VALUE is what the individual hopes to receive. Business valuation is a process of determining the worth of a business.
Why Value a Business?
It is used to determine fair market value of the business for various reasons and a few of them are as under:
- To improve the business’s perceived value.
- Choose a good time to buy a business.
- Choose a good time to sell a business.
- Negotiate better terms in buying or selling
- Complete a business purchase quickly.
- Asking Price: It is what the seller wants.
- Selling Price: It is what the seller gets.
- MPSP: Most Probable Selling Price of a businessÂ is the price for which a willing owner will sell to a willing buyer or it is the market value of your business.
- Fair Market Value (FMV): It’s the amount at which the property would change hands between willing buyer and willing seller acting with free will without any compulsion having reasonable knowledge of facts.
There are three Approaches for calculating value – the Market Approach, the Income Approach, and the Asset Approach.
1. MARKET Approach
(a) Direct Market Data Method (DMDM)
(b) Merger & Acquisitions Method
(c) Guideline Public Company Method
2. INCOME Approach
(a) Capitalization of Benefits Method
(b) Multiple of Discretionary Earning (DE) Method
(c) Discounted Future Benefits Method
3. ASSET Approach
(a) Net Asset Accumulation Method
(b) Excess Earnings Method
ProClient BUSINESS VALUATION SERVICES
Whether it’s selling or buying a business, it’s important to know the value of your company. Our expertise allows us to provide following service to our CLIENTS:
Broker Opinion of Value (BOV): BOV is a special limited appraisal or business valuation. It is an analysis provided by a business broker to assist a seller or buyer in making decision about listing price or Most Probable Selling Price (MPSP) of a business or a suitable offer for purchase of a business.
The report has following assumptions and specifics:
– The report is utilized to determine MPSP of a business with annual revenue up to $1,000,000
– The report is based on comparable sales of businesses on the basis of Direct Market Data Method (DMDM).
– The report is on the assumption that business is being sold free from any liability, debt or burden.