What is Business Valuation

When a business is being sold, whether for its liquid assets or to continue operations under new management, it's crucial for both buyer and seller to have a fairly accurate idea of what the business is worth. Business valuation is done using one or a combination of several different methods to determine the business's monetary worth, taking into consideration the business's debts, assets and liabilities. This article will aim to explain the methods of business valuation and list a few jobs that use valuation methods.

Business valuation is a set of methods to determine how much your business is worth. These calculations include the following values:

  • Equipment
  • Inventory
  • Property
  • Liquid assets
  • Intangible assets

Other factors you might consider include your projected earnings, management structure, share price and more. Business valuation methods are necessary for several reasons. One may be that you're selling your business, or you're trying to get a business loan or bring investors on board. The valuation method that is best for your situation is typically dependent upon why the valuation is needed, your industry, the size of your business and other facets.

For example: If you're selling your small business, you'll likely sell it for its assets. In this situation, you will need to know the collective value of your business assets to come to a fair asking price. This method is done by brokers hired by both the buyer and the seller to get the most objective figure.

In addition to determining the monetary value of a business, business appraisers often use valuation tools to help resolve monetary disputes related to divorce settlements, estimating value shares in the business (in a partnership), estate and gift taxation and other purposes. In litigious cases, the court will likely appoint an objective forensic accountant to perform the valuation. Valuation is also used in tax reporting. The TAJ requires businesses to be valued based on their individual fair market value. Taxes on a sale, purchase or gifting of company shares are taxed depending on valuation. https://www.indeed.com/