When determining the value of a business, it is important to utilize an unbiased approach. After years of hard work, growth, and development, your business may feel priceless, however sentimental value can cloud judgment. A professional business valuation can help to provide a clear view of worth, not solely based on revenue alone but with an emphasis on intangible assets and goodwill, as well.
Valuation services are not limited to one type of business but span accross multiple industries, in multiple situations. Expert valuations are a necessity when hoping to sell a business, in times of legal disputes or as a method of addressing weak points. Weak links in business structures or financial practices can be addressed and maybe even repaired with a bit of guidance.
A difference in perceived values can lead to disputes with business partners, investors, and even the Canada Revenue Agency (CRA). Professional valuations offer objective views of your business, making it possible to better understand your position when acquiring a business, selling a company, or simply planning ahead for the future.
Common Methods of Valuation
In order to account for varying industries and business types, there are several types of valuations to choose from, each with its own distinct characteristics, allowing experts to choose the option best suited to a company based on available information, industry, business type, and even the market value of the business. The most common approaches to business valuations are as follows:
- Earnings-Based Valuation: This method is used for established businesses with consistent revenue streams. Calculations are based on more than assets alone and can consider future cash flows and goodwill based around established practices.
- Market-Based Valuation: Approaches are based more on the market than on your business itself. This means value comes from different metrics, often using the EBITDA (earnings before interest, taxes, depreciation, amortization) method. Revenue and other metrics can also be the basis for this valuation type, revolving around the industry, company size, market conditions, as well as sale and purchase comparisons of similar businesses.
- Assets-Based Valuation: This approach is best suited to situations where a business is worth more in pieces than as a whole. In certain cases, one aspect of your business may be a risky investment while another may have a higher rate of return. For example, the real estate industry is susceptible to crashes and can be seen as a risk. Removing the liability and focusing on more secure holdings may be more beneficial for the sale of a business.
After information is collected and analyzed, valuation reports are provided. In much the same way that there are several different types of valuations, there are different types of reports, each used for different situations. Calculation reports offer approximate values; while comprehensive reports are better suited for legal proceedings and estimates are used for budgeting, future planning, and preliminary sales negotiations.
Whether seeking price determinations for legal cases, tax planning, or creating guidelines for succession, CRSP is able to provide estimates or in-depth reports for corporate finances to small businesses. Financial statements and written reports may provide a snapshot of values and assets but the professionals at CRSP are committed to creating customized plans, catered to your unique business.
By touring businesses, full views of practices are available, providing key insights, beneficial to both chartered business valuators and business owners. No matter your level of experience, business owners are not always familiar with the valuation process or the reports that follow. In order to better involve our clients, CRSP professionals summarize these detailed reports into accessible language so that they can be put to good use.
Assets come in many shapes and sizes. For private to public companies, revenue is the ultimate factor in determining worth but there are other benefits that should be included in estimates, discounting cash flow. Industry professionals can help to guide business owners in the right direction from start to finish. Regardless of what your initial thoughts might be, a member of our CRSP team can help to steer your business in the right direction.