How to Include Balance Sheet in Business Valuation
Different types of companies have different business valuation methods to get accurate and reliable financial information about their business. Generally, business valuation mainly focuses on the profits and revenues of a company. However, there are many situations in which the balance sheet becomes a dominating part of the business’s valuation.
The importance of a well-maintained balance sheet cannot be underestimated in a business. It represents the value of a company and also provides details about the value of the assets. It is an important financial document that provides thorough information about the assets as well as the liabilities. Hence, calculating the book value of the company becomes easy.
Following are some of the most important factors that you should know in business valuation:v
1. Balance Sheet
The balance sheet of a company shows the assets and liabilities of the business. Assets include both short-term and long-term items like cash, equipment, and furniture. Liabilities include short-term items like credit lines and long-term items like loans and leases.
The overall equity is determined by the contribution of these factors and the remaining profits of the company.
2. Book Value
Book value is also called net worth and owner’s equity. Generally, book value is the base valuation method for companies. Accounting firms in Singapore also help companies and businesses to determine their book value during the business valuation process.
The book value represents the organization’s total assets on the balance sheet after minimizing the total liabilities.
3. Assets
As stated above, the summary of the assets is included in the balance sheet. A company’s assets include any property that has any actual value, such as equipment, building, land, and inventory.
Assets also include accounts receivable and money owed to the company. Moreover, it can also include intangible assets like intellectual property, but it is not necessary for all types of companies.
4. Non-Operating Assets
Some of the companies can also have non-operating assets on the balance sheet. It is quite common that the value of such assets is often undervalued on the balance sheet.
For instance, your business might own a warehouse that has a greater price in the market since the time you purchased it.
Moreover, the funds that you might allocate for expansion and long-term investments are also included in non-operating assets.
5. Short-Term Assets
It is highly possible that your business might have more cash on the balance sheet than the financial resources that are actually required to run the business.
In other words, the accounts receivable of your organization might not be as valuable as indicated on the balance sheet—such kind of ambiguities by outsourcing accounting services to a reliable accounting firm in Singapore.
6. Intangibles
Some businesses make the mistake of ignoring the importance of intangible assets. However, it is imperative that you consider all these factors while creating the balance sheet to ensure the reliability of the business valuation process.
The intangibles might include copyrights, licenses, and many other kinds of intellectual property.
7. Liabilities
Liabilities include any debt that your company owes to outside stakeholders. Such debt can be in the form of accounts payable like wages and long-term debts like mortgages.
Once you hire the professional services of an accounting firm in Singapore, you will not have to worry about taking care of these factors by yourself, as professional accounts will certainly consider all these factors to include a thorough and accurate balance sheet in business valuation.
8. Limitations
It is important to consider all these factors in the business valuation process because they combine to form a reliable balance sheet of your company. The book value of a company provides information about the minimum value of a company. If a company is going to stop operating or liquidate, then the book value would be enough to make the decision.
However, the book value does not include the future revenue of a company and considers the overall market situation. In such a situation, it is important to consider other financial metrics of the company and include the balance sheet in the business valuation process.
In a Nutshell
There is a lot of debate around the business valuation processes because some experts believe that it should be a simple process. On the other hand, many accountants and economists believe that business valuation should always be based on the multi-factor model to ensure efficiency and reliability.
By outsourcing the accounting services in Singapore, you will be getting help from experts and professional accountants. As a result, you will be able to implement the best business valuation process in your organization. For more information, feel free to get in touch with us.
