Valuation can have a huge impact on the way that your business operates. Understanding the market value of any asset, from an entire company valuation to the individual value of a product, can have a heavy influence on your income and market approaches as a whole.
Whether it’s for financial analysis purposes or to handle a tax dispute, valuation methods can be a requirement in the business world. Beyond that, it can be an important part of building a business strategy and planning ahead, even for relatively small businesses.
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We at TaxBite can provide a range of valuation methods and services, helping you understand your own business value as well as letting you plan your investments and finances ahead of time. Our experts are skilled at accurate valuation, no matter how much information we have to work with.
Not only can we help you uncover the current value of a business, but we can also make it easier for that valuation information to be used in other ways. Assessing company valuation is one thing, but understanding how you can use that value is another issue entirely – and one that we can help with.
Business valuation is the overall process of determining a business’ total value in economic terms, taking into account things like stock price, present value, market value, future cash flows, and other investment banking related information.
This information can give an accurate estimate to a business’ total value, analysing everything from its management and future earnings to the structure of the business itself. Valuations can be used for a range of different purposes, all of which rely heavily on knowing how much a business is worth.
Business valuations are important for a lot of complex or niche situations, some of which are absolutely impossible without employing any kind of business valuation methods. Some of these situations are more common than others, but all of them are easier with a fair value already figured out.
For example, a business owner may want to evaluate their total asset valuation when they’re:
We can provide an effective valuation method for each of these situations, helping you find the right market value for your business interests and ensuring that those values represent the information you’re looking for.
Contact Us TodayThere are several valuation method options when it comes to creating a valuation report, and understanding the way that they present value can be important in the long-term. Creating financial statements based on your business’ market value means having the right information at the right time.
There is no single best approach when it comes to business valuation, and some methods will be better than other methods in particular situations. We at TaxBite have the professional practices and experience to recommend the right value method for each scenario.
Business valuation through market value is a very subjective method, but it can still serve your business interests if used in the right way. Fair market value is determined based on the value of other businesses that have sold, usually similar ones in the same niche.
This relies heavily on gathering market data from these similar businesses, which can be challenging for a smaller company, and the end value is usually quite imprecise. This makes it risky for financial statements, especially ones involving tax planning.
On the other hand, finding the value of a business through similar businesses on the market can be useful for attracting investors. Fair value gives you an estimate of what your business might be worth overall, which can be very effective in situations where you don’t need an exact number and want the maximum value possible.
Going concern is an option for any business that’s not liquidating or selling any assets. This takes into account your current assets as well as your liabilities, creating projections of how the business is expected to perform by the time it has to pay off more financial obligations.
This takes on a similar role to cash flow predictions, showing the expected value of a business in a set forecast period. While this might not be entirely accurate to the business’ growth, it can be used like fair value, showing off the business’ current performance and expected changes.
An ongoing company can be in the middle of value creation as you purchase it, meaning that it can take some extra time to value. It’s possible that a sudden spike in value creation could boost the share price of the company, and that higher share price might increase its value before you’ve finalised the purchase.
Liquidation value revolves around the idea that the business is fully liquidating, with all assets being sold off for money or purposed. This business valuation method translates the business themselves and all other assets – including intangible assets – into a measurable amount of money.
This approach makes it easy to see what a business is theoretically worth in terms of money alone, which can be important for a company that plans to fully liquidate it. This can be influenced quite heavily by the current market, depending on the kind of businesses being liquidated.
This also ignores anything like future performance or expected income, but not intangible assets that can still be useful – such as client lists, valuable market data, or stock that can be re-sold by the company that purchased it.
The times revenue method is meant to determine a business’ value in the future, calculating the maximum worth of the business by multiplying its current revenue. This can be used to estimate information like a business’ expected revenue throughout a whole year, or its performance over the next decade.
This obviously isn’t that accurate, especially since it relies on the premise that revenue will never change. It also changes quite heavily depending on current market factors, from the economic climate and the relevant industries to the total amount of time that the buyer wants it to keep operating.
In some cases, this might be used as a prelude to possible liquidation valuation – checking to see if a company will turn any profits, then considering it for liquidation if the total earnings multiplier doesn’t seem to be worth the purchase price.
Sell Business For Maximum ValueUnlike revenue, the earnings multiplier method focuses on actual profits after expenses have been paid. While this involves more calculations, it’s a step closer to the ‘true’ value of the company that you would see as a business owner.
Although similar to the times revenue method on the surface, earnings multiplier valuation puts the multiplied revenue against a cash flow, trying to account for interest rates. It isn’t as simple as multiplying a flat number, and attempts to create a realistic prediction of a company’s value.
Market multiples like this can be a good way to estimate future profits based on the business’ capital structure. However, they are still market multiples – there will only be a certain period of accuracy, and attempting to predict too far ahead can backfire with volatile companies.
Discounted cash flow is, as the name plies, based on the bought business’ projected cash flow rather than any intrinsic value. It involves many in-depth calculations to properly manage, but the end result is meant to simulate a business’ income in a more valued, realistic way.
The idea behind DCF can be complicated, but it works on the principle of money being worth less in the future – or, alternatively, that a business will earn less over time.
It also allows for objective fair-value-style measurements of how much the business it worth at present, combining actual value with projected income at a discount rate.
Using the discounted cash flow method means that you’re following the idea of money having a time value. Each month in the projection uses a discount rate, which is meant to simulate and estimate how long it will take for an investor to make their money back.
This discount rate is only scratching the surface of how DCF works. As one of the more complex financial models used for business valuation, it’s one of the more popular services we offer, providing great results to businesses and buyers in any industry.
Using the market capitalization of earnings method allows us to calculate a business’ total expected profits and profitability, combining the expected value with the annual ROI and cash flow.
Market capitalisation makes the assumption that a business’ earnings will stay consistent throughout a longer period of time, adding to its total value. This is meant to be for stable businesses, ones that won’t have sudden changes in value and profits.
While this might not sound accurate at first, it can be surprisingly effective for businesses that genuinely don’t seem much change in revenue or expenses. Thanks to this, the capitalisation method can work really well for valuing smaller companies with no desire to expand or open up a second location.
Book value is a method of business valuation that relies on the balance sheet – it’s the value of the equity of a business that shareholder owns, shown on the balance sheet statement itself. This method is simple: taking away the total liabilities of the company from its total assets.
This is a quick, simple, and reliable method of quickly estimating the immediate value of a company, taking into account costs that haven’t yet been paid or expenses that are an inherent part of day-to-day operation. For example, raw materials might be needed each week, and the cost of those materials should be reflected in the total value.
Book value isn’t especially effective, but it can be a very quick and simple way to get decent equity valuations before a valuation date. It can also be a good point of comparison for more in-depth methods, acting as a default measuring point of the business’ immediate value.
Calculating the value of your own business can be important for a range of reasons: getting purchased, getting insurance, or even selling the business yourself. However, business valuation can be confusing at first, and it relies on a few core factors to handle correctly.
In general, a buyer will care about two things: risk and return on investment (or ROI). Higher ROI and lower risk means a higher sale price, since the buyer will feel confident that they can make back the money they spent on the purchase. This is the heart of investing, and a pattern most buyers follow.
ROI measures how much money you have earned and how much value you have created: specifically, the net value, calculated after dues are paid and expenses are considered. This includes everything from taxes and rent to salaries.
Return on investment doesn’t consider factors like effort involved in setting up the business. Instead, it’s dedicated heavily towards profits and profits alone, with risk being the only other real factor related to it.
Risk is a bit harder to pin down, because there is no formula for it. For example, a business enterprise that has been around for one year and isn’t seeing any revenue growth is usually a risky option, even if it sounds fine on paper. This is because:
Risk means different things to different people. Even so, it’s important to consider anything that could be a risk, from employee motivational issues and poor supplier relations to a lack of space for growth and poor system documentation.
Private companies rely on private equity, or P E, as a way of handling investments and shareholders. P E means that a private company is generally owned by the founders and their families, with P E never going beyond their immediate inner circle.
Since private businesses doesn’t have the same requirements as public company’s management, P E becomes a valuable metric for measuring market price. P E isn’t usually subject to outside change, and a private company doesn’t have reporting restrictions or requirements to follow.
Whether the company is selling part of its ownership or completely up for sale, P E can be purchased by outside investors. Valuing private companies revolves heavily around this P E, which can mean a very different market approach compared to listed companies.
We can help you deal with the valuation of private companies, working with both you and the original owners to find the right value amount for the business based on its total equity.
We at TaxBite are an experienced team of tax advisors, experts and specialists, all carrying the accreditation and qualification necessary to offer investment banking and business valuation services. With over 10 years of experience at handling multiple financial niches, we’re to tackle even the most challenging financial troubles.
We have a wide range of services on offer, from tax management and projecting future cash flows to acting as a valuating middleman. As a chartered business valuator company, we can provide excellent financial modelling work using tried and tested valuation methods.
All of our work is fully compliant with government guidelines, and we have built up an excellent reputation without our industry – the same industry that we’ve spent years building up an excellent range of experience in.
We can also handle the more precise parts of our work well, offering advisory services along with sensitivity analysis options, among others. Our staff can even be an ‘expert witness’, observing how your data changes to make accurate predictions or point out trends.
If you want financial modeling and valuation services from a chartered business with a lot of experience in that field, then get in touch with us today! Our expert team of well-prepared professionals can easily value your business based on whatever factors matter the most in each situation.
The cost of business valuations can vary heavily for a wide range of reasons, including the scope and size of the subject company. A larger subject company means more time and effort spend on valuation, especially if that process involves seeking out comparable companies.
Most of the time, a valuation of a private business can cost anywhere from £5,000 to £15,000. Particular industries can be more complex to approach, especially if the circumstances surrounding the sale are a bit vague or cross multiple industries, so this can have an impact too.
Finally, of the several methods we have available, each can cost different amounts depending in the difficulty of that process. A low-cost approach might not offer as much data about a company’s profits, since the higher-cost methods tend to be the more in-depth ones.
All of this is just an average breakdown, of course. We can provide a range of different services and tailor them to the client’s needs, so you can contact us if you need to discuss a specific budget limit or want to aim for a certain price during the process.
A valuation relies on having certain pieces of information available, even without considering the specific requirements of each kind of process. By default, a valuation would need:
Different kinds of valuation will require different things, so we will always let you know if we’re missing a particular document or piece of information.
Valuation is based on time – specifically, it’s often a snapshot of corporate finance information and future predictions rolled into one calculation. As such, choosing the right time can be important, especially if a company is about to go through some major changes.
Using up-to-date revenue and corporate finance data is vital for getting the value correct, which can make a massive difference to the cost of purchasing a business further down the line. Organisations like the Canadian Institute of Chartered Business Valuators put this as a high priority for smaller companies.
Aside from the usual corporate finance uses, business valuation can also be used by the business owners themselves to measure risks or compare themselves to competitors. Understanding the value of your own business can help with a lot of individual situations, especially ones where your business is directly competing with others.
It can also double as a planning tool for getting an instant overview of your business’ worth, and can be necessary for many tax situations. For example, the Internal Revenue Service (IRS) requires accurate tax information, which will be required for a business operating at least partially in the US.
Our advisory services are able to help you prepare and plan ahead with all kinds of business matters, including ones that directly involve valuing your own company. Whatever you’re looking, and no matter the situation your business is currently in, we can help you get the information that you need.
If you want to know more about the advisory services that we offer, then you can contact us directly to talk to our experts about what we can provide. Remember that we handle each client in a bespoke way – we want to give you the best results possible each and every time.
Our expert staff are on standby and ready to help you with you latest valuations, tax work, or any other financial issues that you’ve run into. Take your time, get in touch, and talk with us to see which options might work best for your business.
