Even if a business owner has no immediate plans to sell or transition their business, they need to understand the amount of value they have built and are continuing to build over the years. Is all of their work providing an acceptable return? Many business owners are shocked when they find out how much their company is really worth!
There are several ways to estimate a company’s value. One of the simplest ways is to look at a fair number of sales of companies similar to the subject company – the Market Comparison Approach. Comparing the sale price, excluding real estate, to those companies’ annual revenues and EBITDA will yield a multiple of sales value that can then be applied to the subject company. Unfortunately, sales prices and even transactions are not public, and transaction details are very difficult to ascertain.
The Cost Approach is usually not applicable because over the years the value of the company’s assets has diminished while the indeterminable Ongoing Concern Value of the business has increased.
Ultimately, the Discounted Cash Flow method (DCF) of valuation is relied upon heavily. This starts with the assumption that any Buyer will require a fair return on their investment. Once the variables of required return on investment and the cost of capital are determined the calculation begins. Generally using a detailed five-year projection of cash flows with the fifth year being the terminal year, the cash flows are discounted to todays present value. The projected asset value at the end of the five-year term is added as the last cash flow and also discounted to a present value. The result is a purchase price that will give an investor their required rate of return.
The cost of a certified valuation report can be many thousands of dollars. Fortunately, there is an organization that will not only provide you with an accurate Valuation of your company, they will give you specific steps to take to increase value right away. FinancialCheckUpReport.com will provide a complete financial assessment of your business and offer easy steps you can take to increase profit and value. Remarkably, they are able to do this for a fraction of a full-blown Valuation Report. Best of all, it’s 100% confidential.