The Value of Building Your Business
Some owners have a number that their business is worth; often inflated by their emotional attachment. On the other hand, many owners underestimate their business because they do not understand the technical nature of the various valuation methods that are the best type of business for them
Experience has shown that there is a big lack of understanding of their Business value of the percentage of the owners, and how to build their true market value. Link uses a number of established valuation methods, usually in combination with a series of different options to build the most accurate figures. The graph is then further reviewed by comparing the theoretical value with the current and historical sales information from the Link database.
Profitability and Risks
Valuation of most companies is based on the valuation of assets and cash Surplus generation. The risk factors for a particular business are also taken into account. This is the level of threat from existing or potential competitors, changes in technology or consumption trends, and many other factors that may affect revenue or cost.
"Obstacle to entry" is another consideration that involves assessing the degree of difficulty or obstacle a competitor may face in deciding to establish a similar business. For example, a firm that requires minimum capital investment or technical knowledge is considered to have a low entry threshold and may therefore have a lower value
The valuation of most firms is based on the "going concern basis" the value of. For various reasons, buyers are reluctant to purchase company stock, including future future tax, credit or legal liability, or the risk of contingent liability inheritance based on historical transactions. The price of the business usually consists of three components:
1. Intangible Assets
The future revenue potential of this business reflects the rights that may include intellectual property rights (IPs), products or services, leasing benefits, contracts, technology and procedures, and goodwill
Fittings, fittings, plants and equipment for commercial production of income.
3. This is usually calculated on the basis of the book value of its depreciation. stock.
Shares purchased for business resale or manufacturing purposes. It is valued at historical cost prices. Generally, two or more of the following methods are used to assess the value of the business:
1) Sector ratio
4) Based on the market
Based on the earnings
Based on the earnings
Some companies are in the growth industry, with good track record and solid forecasts. Other businesses may be in the so-called sunset industry, where forecasts are less upbeat. Many factors influence the true market value of the business, including the business sector, economic conditions, business cycles, interest rates, availability of labor, and a host of other effects. Similarly, the value of trademarks, brands, intellectual property and goodwill is not always easy to quantify. The balance of all these factors with the commercial book valuation establishes a true market value
1. Industry Ratio
The value of this business is based on its sales records compared to the industry average. This approach is often used for small businesses and franchises, which have matured records in specific industries. It can also use a formula for the multiple of sales per week or an average of the sales obtained from similar businesses.
2. Asset Based Approach
In an enterprise with a history of low or even loss, an asset-based approach is often used. Using this approach, the value of collective assets (tangible and intangible) will determine the value of the firm. In many cases, there is an element of goodwill to deal with, even if the business does not make a profitable transaction. Although individual assets can be purchased in the open market, as a going concern, the value of the asset is usually purchased, which may include customer lists, relationships with suppliers, combined labor, brand awareness and reputation. The calculation of intangible assets, including goodwill, requires some subjective judgment, plus the use of empirical and market comparisons
3. Based Income
In general, revenue-based approaches are used for larger firms, with an emphasis on revenues rather than assets. Various methods are used when evaluating using a revenue-based approach.
Based on the value of earnings depends on the consideration:
A. The level of return that can be expected by investing in the business involved, with particular regard to the perceived level of risk and the real cost of management
B. The "industry average" multiplier of true earnings. This multiplier is market-driven and varies according to perceived industry risk factors, perceived benefits sustainability, and historical comparisons. The most common multiplier used in this approach is EBIT (Earnings before Interest and Tax), but others are often used, and it is crucial to compare "Apple and Apple" when discussing multipliers
A dry-cleaning business has the following characteristics: […] the breaking of the market value of the unencumbered tangible assets of the business
On average, the owners want to sell and move on. The business has tangible assets with a total book value of $ 135,000, a stock of $ 5,000 (all available for sale), no bad debts and will pay all creditors. The fair market value of tangible assets has been estimated at $ 110,000 and intangible assets and goodwill are estimated at $ 15,000. Therefore, the fair market value of the business is calculated as follows: $ 110,000 (tangible assets)% 2B $ 15,000 (intangible assets and goodwill)% 2B $ 5,000 (stock) = $ 130,000
Tom's Manufacturing Company generated an adjusted net profit of $ 160,000 (EBPITD). The company's net worth (factory and stock valuations) was $ 240,000, and Tom (owner) had a fair wage of $ 70,000.
To calculate the return on investment for Tom's business:
Business Profit (EBPITD)
Profits ………………………………….. ….. …………. $ 90,000
Return on Investment
……… ………………………………… ….. $ 90,000
Segmentation by Required Revenue ………………………. 25%
Evaluation of valuations …………………… ….. $ 360,000
There will be some cases in which there is no sound theory of quantity or a complex method of applying alone would be sufficient. It is not uncommon for a willing buyer and a willing seller to agree that a value that violates all traditional assessment methods. In other cases, the use of traditional assessment methods to produce unrealistic values, the market reality has no effect. It is important in any assessment to "overlay" the relevant market data and the multiple in the "real world" in similar enterprises.
There may be a taxation issue to consider when selling your business. For example, if you devalue the sales of your plant and equipment (or your company's car) by more than the book value of the devaluation, you may be required to repay some of the tax when the item is depreciated (depreciation rebates). If the land and buildings are included in the sale, other tax liabilities may arise. In selling your business, you must fully understand your tax situation and seek professional advice.
Like any asset that the buyer is prepared to pay for Subjective judgment. ]