A business valuation is the process and procedures used to determine what a particular business is worth. Such a valuation can be used to determine the worth of the business as a whole, and also, consequently, the economic value of an owner’s separate interest in the business.
A valuation of a business is typically necessary when the company decides to sell its business, or when one or more of the owners departs the company thereby triggering a buyout or redemption agreement. However, a business may also be valued for various purposes such as mergers and acquisitions, sale of securities, and other taxable events. Furthermore, a valuation can also become necessary if there is a shareholders’ deadlock or other disagreement, or if there is another issue affecting an owner’s ownership interest, such as divorce proceedings or estate contests. Accordingly, a business valuation is then necessary to determine the exact value of an ownership interest in a company.
Typically, there are three business valuation approaches: (1) asset approach; (2) market approach; and, (3) income approach. The asset approach is based off of the economic principle that a business is a set of assets and liabilities, which can be used to construct the picture of a business value. A market approach, on the other hand, uses the signs from the real market to determine what a business is worth by comparing similar businesses and what they sell for. Finally, the income approach looks at the future expectation of the money that the company is expected to make to determine the value of the company. In addition to the financial considerations used to determine the business value, non-financial considerations, such the businesses’ location or brand name, are often also considered and included in the valuation of a company in an attempt to reach the most accurate value.
A business valuation analysis is often required for many financial and legal situations. For more information on business valuations, please contact Antonoplos & Associates at 202-803-5676 or on the web at www.Antonlegal.com.