Business valuation lets businesses understand and unlock the true value of their owned assets. It is a method that accurately prescribes and describes a market value, which is the estimated number in which a liability or asset should be exchanged on the valuation date between a willing purchaser and seller in an arm’s length transaction. This is done through proper marketing and where each party had acted prudently and knowledgeably, which should be set apart from accounting depreciation (planned depreciation), in which the recorded decline in the cost of an asset is linked to its business life.
Moreover, there has been a continually strong emphasis on governance and internal controls based on standards set by statutory bodies like the Institute of Valuers and Appraisers of Singapore (IVAS) and so on. And due to these established guidelines, companies looking to do valuations and understand the value of their assets have seen a steady surge.
Read on for a better idea of business valuation and why it matters for your business.
What is business valuation?
A company performs business valuation to understand the economic value of its various assets. Business valuation has a wide range of purposes, and it is especially important in decision making and governance in the corporate world. Quality valuation reports will help businesses make more accurate decisions and choices in their various corporate processes.
Consultants and auditors will work together to offer valuation opinions and consulting services so businesses can better understand the valuation of their aggregate interests and enterprises. Business valuation can be done for many purposes, such as acquisitions and disposals, which are methods of acquiring a stake in a business.
Business valuation can also be undertaken for joint venture buyouts, which is when a business partner chooses to exit a deal and sell their shares to the other stakeholders. By calculating the value of the various assets involved, businesses can come to a conclusion on the next step they should take.
Transactional planning and tax reporting are some of the other reasons behind business valuation. Business valuation is also done for litigation purposes or to resolve legal disputes. For example, certain businesses may be involved in commercial or family legal proceedings. Other legal matters include personal or corporate taxes. In such scenarios, consultants offer valuations of the said business or related shares.
How is business valuation done?
Business valuation can undertake a variety of forms. Here are some of the various ways consultants perform business valuation.
1. Valuing the business’s interests
Business valuation involves delivering valuation consulting services or valuation opinion to determine the valuation of business enterprises or aggregate business interests. Usually, these evaluations are done for: general business purposes, dispute resolution or litigation purposes, transaction planning, tax reporting or financial statement reasons, refinancing or collateral or secured financings, and the sale or purchase of business.
In fact, it allows businesses to assess their valuations or appraisals of securities, business ownership interests, partnership and limited liability company interests – be it publicly held, privately held, held by government entities. Through acquiring quality valuation reports, it allows for improved corporate governance and corporate decision making.
2. Intangible asset valuation
Valuation opinions can be offered when businesses request intangible asset valuations. Otherwise, consultants can also offer valuation consulting services. Both services apply for a wide range of assets – be it for individual or multiple intangible assets. Liabilities and intellectual property are also covered under intangible asset valuations.
There are many reasons why companies would opt for intangible asset valuation. It is useful for financial statements and tax reports, and it also helps businesses with license applications or relicensing. Businesses also use intangible asset valuation for refinancing or collateral or secured financings, which are used to secure loans.
3. Fairness opinions
Corporations can also opt for business valuation in the form of fairness opinions. Fairness opinions usually come in the form of a report that outlines the many factors involved in the purchase or sale of certain assets. It is also applicable to business interests and would usually be addressed to a Board of Directors.
The Board of Directors will then use this report in accessing the benefits of proceeding with or completing the relevant business agreement or transaction. It is also assumed that the report has to be accessible to other third parties and the general public.
4. Fair value studies
“Fair value” type reports analyses assets and liabilities from a fair value perspective instead of a market value perspective. They come in many forms, but they are usually based on the various requirements and criteria that were brought up in the transaction. They can also be based on various requirements stipulated by taxation authorities, or they can be calculated in accordance with rules stated by other government or regulatory bodies.
How can a professional assist companies with business valuation?
Consultants well-versed in the field would often be familiar with business valuation across different industries, ranging from manufacturing to FMCG. They would understand the most suitable methods that they should use for each scenario, and their in-house experts should be familiar with the various regulations as stipulated by government bodies.
Business valuation is a critical step in constructing efficient, timely, and profitable business strategies. Accurate business valuation is one of the most crucial steps to help a company grow to its fullest potential.
If you are searching for an esteemed professional firm to help you in valuing your business, Max Lewis Consultants can step in and assist you. Besides business valuation, we are one of the leading service providers for transfer pricing advisory, derivatives & ESOS/ESOP valuation, valuation of and GST ASK Review & certification. Consult our firm today to transform your business for the better.