What Is the Business Valuation Process
Business valuation is a very important part of all types of businesses and companies. There is a wide range of business valuation techniques and strategies used by experts.
Generally, when you hire experts such as an accounting firm in Singapore, the experts will choose the best valuation technique depending on your business type and the industry in which you are operating.
The specific business valuation process can greatly vary, but typically it involves a series of steps that you have to follow in a certain order to calculate numerous financial metrics while also considering the accounting rules and standards.
However, it is important to note that business valuation is much more than just calculations and using the perfect valuation process. In fact, it also involves using good judgement to make the perfect assumptions and projections.
Let’s look at the six major steps of the business valuation process in detail:
Step 1 – Hire a Professional Accounting Firm
The importance of relying on professional and experienced accountants as well as auditors during the valuation process cannot be understated.
Whether you run a small business or a large one, you should consider hiring an accounting firm in Singapore or an audit firm in Singapore to let the professionals deal with business valuation procedures that can be quite complicated.
Since every company is unique and operates in unique circumstances, you should let experienced individuals handle the valuation procedure. Ultimately, these experts can provide professional services for your company to obtain the correct business value.
Step 2 – Know the Purpose of Valuation
The purpose of a valuation is important to determine the best business valuation approach as well as the assumptions to use throughout the valuation process. Hence, it is important to determine the purpose of valuation at the start of the process.
Step 3 –Determine the Basis of Value
There are various types of business valuations and valuation techniques. It is important to determine the type of business value being measured and also consider the perspectives of the parties involved in such valuation.
For instance, a value might affect both the potential seller and buyer, or it might only be useful for the investor. Being familiar with the basis of value is also useful to ensure compliance with legal regulations and financial contracts.
Step 4 – Determine the Premise of Value
The purpose of the valuation and the basis of the value determined in the previous steps are important to evaluate the premise of value. The following are two major types of the premise of value:
- Going Concern Premise in which usage of the business assets and operation of the business is used for business valuation.
- Orderly/Forced Liquidation Premise in which the sale of the individual assets or in a group is considered for business valuation.
There are also other situations, such as mergers and acquisitions. In such a situation, the purchaser can get benefits from an acquired business that might be much greater than the fair market.
All of these valuation procedures become quicker and easier with the help of experts and accounting firms in Singapore.
Step 5 – Get Financial Data
A significant amount of data is required to properly evaluate the value of a business. You should have comprehensive and well-organized data in the form of financial reports, documents, legal contracts, customer/supplier agreements, loans, and other types of financial agreements.
Generally, all of the documents that impact the financial situation of a company are used by accountants and auditors for business valuation. Having thorough financial records will make the business valuation process quicker and smoother.
Step 6 – Using the Best Business Valuation Approach
The most important thing to do in business valuation is to pick the right kind of valuation approach. It is common for businesses and even well-established companies to have all of the data but yet make the mistake of using the wrong business valuation approach.
Market, income, and cost business valuation approaches are the three most common techniques of business valuation.
The specific procedure, pros, and cons of each technique can vary from company to company, so it is better to rely on experts like accounting firms in Singapore to complete the process for you.
All in all
The process of business valuation involves many different factors, so inexperienced individuals will face difficulties in determining the correct value of a company.
However, with professional services provided by accounting or audit firms in Singapore, your company can precisely determine the correct business value using the right business valuation approach.