If you are a business owner, you know very well that it is not luck that drives success, but a combination of skills, hard work, passion, and dedication, and thus your business is one of the most valuable assets that you could probably own.
When you want to know how much the business value is worth, you know that it is not as simple as looking up for a stock price or trying to estimate its price. You will need professional help from the business valuation Vancouver specialist who knows how to do these estimations as precise and informed as possible.
But what is business valuation by the way? It is a formal process done in order to estimate the value of a certain business. When you try to understand the whole process that involves it, as well as the skills required, you will begin to understand and see it as a science. It relies on the professional judgment that weighs all aspects in business: local and national economic conditions, the nature of the business, financial performance, and the liabilities as well as the technology that could have an impact to how the judgment is made.
The following are the reasons why you need a business valuation from a specialist:
- Estate tax purposes
- Raising investment capital
- Merger or sale to another entity
- Gifting shares of a business to children
- New shareholder or partner
- Establishment or update of an employee stock ownership plan (ESOP)
- Going through a divorce that affects business’ ownership
While there is no credential needed to perform this work, it is recommended that you hire a specialist with years of formal education and training as well as profound experience when it comes to business valuation. By finding the following certifications, you are mostly guaranteed the performance of the specialist: Credentials (and the certifying organizations) include ASA (Accredited Senior Appraiser – ASA). ABV (Accredited in Business Valuation – AICPA), and CVA (Certified Valuation Analyst – NACVA).
Furthermore, the specialist is able to create a judgment relying on these three different valuation approaches:
- Income-based approach – this approach focuses on the income that a business generates. Generally, the average of the recent data is adjusted to the hypothetical cash flows that a new owner is able to receive. This cash flow is then discounted to the present value. In other instances, projecting the income of the future can also be used with the given data and factors
- The asset-based approach – used to determine the fair market value of the asset and commonly results in the lowest value of a business. This method looks at the collection of assets that affect how the business will run in the future. This method is mainly used to set a floor for the value of a business.
- Market approach – this method uses the recent sales of comparable businesses as reported in databases and reflect some differences between the business being valued and the businesses sold in the market. This method is effective when there is a good number of businesses that can be used to compare values with.