Business valuation. Methods and principles of valuation of business

Analysis of the valuation of business involves a certain, rather laborious process that helps the owner to determine the value of the company, firm or some company. It can take in different situations. An estimate of the market value of a business may be required in a given case, since the manager must know this indicator in order to make decisions related to the sale or acquisition of property rights. We can say that such an evaluation represents the result of the work carried out by the company throughout its existence.

Features

Valuation of business is a concept, by which is meant the fulfillment of certain tasks.

Initially, it consists in the analysis of a controlling stake in an enterprise or a company. Solving this problem allows you to get a true and clear view of the price of the whole business.

After that, an evaluation of the block of shares, called a minority stake, is conducted. The complex of property is also estimated. In this case, business assets are given special attention. As such, various structures, structures, networks, vehicles, land, equipment are performing. In addition to property, the company's financial routes are also evaluated. In addition to the foregoing, the market condition is also determined, as well as the state of the discount. This process is usually called the valuation of shares of a company listed on the market.

Business as goods

The valuation of the business is carried out and provided it is perceived as a commodity. When a company is opened, a certain capital is invested in it, which in the future must be returned. Moreover, the object of assessing the value of a business, whether it is a company or an enterprise of any field of activity, should be profitable, otherwise there is no reason to base it. Initially, it is not known how much revenue will be received, so the opening of any business is a risky exercise. However, modern methods of estimating the value of a business allow you to get information about future profitability in advance, after which you can make a final decision.

The business in itself represents a certain system that can be implemented in the market framework as a separate element, a whole complex or subsystem. The goods can be referred to as either the whole enterprise, or its individual elements. The mass of external and internal factors affects the level of profitability and the needs of a particular case.

It is customary to refer to the external as an unstable economic situation in the country, which quite often happens. This causes a certain volatility in the business. The state is obliged to take this into account in the regulation of business processes. Often a company is able to influence the market or the market as a whole. Therefore, it is able to influence the economic situation in the country.

The importance of evaluation activities

Valuation of business is a necessary and useful procedure. This can be proved by certain examples of what this procedure gives:

• With its help, business management can become much more effective;
• With its help you can easily make certain investment decisions;
• By means of an evaluation you can create a productive business plan;
• By assessing the business, you can smoothly move to the reorganization of the company;
• With its help you can find out how the firm is creditworthy;
• The assessment allows for tax optimization of the business.

Methods for assessing the value of business involve several stages. To begin with, we collect the documentation that gives the necessary information about the firm or enterprise. Further, the analysis and full study of the market on which the firm's activities are based are conducted. At the next stage, the time for performing settlement operations comes. Next, you must approve the results obtained as a result of the previous procedure. And at the last step, a report is prepared, which serves as an assessment of the business.

Basic Techniques

An enterprise or firm is assessed using three approaches: profitable, costly and comparative. You can describe each of them in general terms, and then consider in more detail.

The cost approach involves estimating the costs incurred by the business. Very often the book value of assets does not match the market price. In this case, the valuation of the enterprise is a thorough and detailed reassessment. This method has one advantage - it is based on real assets.

Comparative analysis involves comparing the estimated business with a similar enterprise or company present at the time on the market. Information is consumed from transactions involving assets, stock markets and the takeover market.

There is also a profitable approach. The valuation of business in this case is carried out after calculating the income expected from the work of the enterprise. The main factor determining the valuation of the business to a large extent is the profitability of the company. It turns out, the higher the profit, the higher the final estimate of the business value.

A bit of history

Estimating the value of an enterprise's business can prove to be quite useful not only for the seller, but also for the buyer. There is some curious information about this fact. This applies to those moments that were previously very few people knew. That is why you should plunge into history a little.

It is difficult to determine when the evaluation services in this field appeared, and also who suggested them for the first time. However, modern approaches to the valuation of business were laid in the twenties of the last century in America. It was at that time in the United States that a ban on alcohol products went out, which everyone knows that caused the collapse of the alcohol market. At that time, it seemed that there was no point in assessing the business, but the economy would not become a market economy if its participants did not seek alternative ways.

To estimate the cost of the alcohol business was quite soon after the "wine-vodka" collapse. Many factories that were engaged in the production of alcoholic products, in 1920 received tax benefits from the state for the damage that it caused. Of course, all companies were of different sizes, so the amount of benefits was required different, at the same time everything had to be justified by law so as not to leave anyone offended. It was at this time and it was required to assess the value of the business of the enterprise. It was then that the terms were born, which are still actively used, for example, "goodwill" or the cost of business reputation, which implied the valuation of intangible assets.

Such principles of valuation of business take into account a whole set of factors that give an idea of the future increase in profitability of a certain firm in comparison with the average performance of similar companies. Business evaluation necessarily takes into account such important points as the company's reputation, brand recognition, favorable location and others. Even now, the majority are confident that such an elementary research is based on such elementary concepts as debts and assets.

But we have already become accustomed to the fact that the evaluation is often represented by a variety of forms, among which the most notable are the measurements of the amount of money and income received with the help of this business, coming in at the moment and expected in the future. However, when it comes to the cost of business reputation, professionals try to take into account such things as the stability of the workforce, the name of the trademark, as well as other equally important factors that can greatly affect the final results that the valuation of the business provides.

How to count?

All these conclusions and innovations became the basis for the release of a memorandum in America in the 1920s, in which fundamentally new ideas were presented in assessing business. They concerned intangible value. It turns out that the modern principles of assessing the value of business were laid a century ago, and they were so reasonable that they spread all over the world, gaining many admirers, corrections, improvements, innovations and developments. It turns out that the expert assessment of business at the moment is an important point for businesses that care about the profitability of their activities.

So, you can give an example of the valuation of business to better understand what is meant by this process. Suppose you became the owner of shares of some large company A. Of course, you are interested in the value of your stake. To do this, you will read newspapers, study information on the Internet to get an idea of the value of the shares, which it would be appropriate to ask if you want to sell securities. At the same time, there is no assessment of the enterprise's business.

In addition, if it is a private firm, then completely different laws are applicable, unknown to an unscrupulous or inexperienced appraiser. Because of this, quite often there is confusion in the process of assessing the business, and also there are errors that are typical for this process. You can list a few of the most common myths in this area.

Myth First

An enterprise's business valuation should be valued only when it is ready for sale, or the creditor is required to conduct this procedure before imposing an arrest on the property to secure the debt. Of course, this reason is the most widespread and most important. If, up to this point, there has never been a valuation of the business, you can be completely sure that its owner was not interested in issues related to minimization of property costs, land property planning, and others. If the business should be profitable in the future, then the owner should be interested in its evaluation.

Myth of the second

The owner of the enterprise knows that the value of business in this industry is equal to the company's double annual income. Therefore, he is convinced that there is no need for hiring an outsider in order for them to assess the value of the business. Of course, such indicators exist, and they are especially common among brokers, economic observers and other professionals who are used to compiling averaged lists, adhering to intermediate indicators even in such subtle issues.

But it is necessary to be defined and with what under itself hides "an average parameter"? This term implies that part of the enterprises are below this level, and part is higher. It turns out that the aggregated data of statistics are indicators for revealing certain results, but they are not able to tell about any particular transaction carried out.

Each individual business is individual, so the evaluation should be developed for this particular case, using a special project, and not according to a template. Otherwise, there is a high probability of disputes, omissions and inaccuracies.

Myth Three

The competitor sold his business 6 months ago at a price that is equal to the company's triple annual income. Your business is not worse, therefore, you are not ready to set a lower price for it. This myth is also needed to dispel. Naturally, you need to be confident in yourself and your own business, but what happened six months ago can not be relevant at the moment.

Evaluating and managing the value of a business requires answering a few questions:

1. What is the profit at the moment?
2. What is the expected increase in profit in the future?
3. What is the profitability expected by potential buyers who purchased your business?

During the evaluation, it is very important to be aware not only of the internal indicators of the losses and incomes of the firm, but also of the economic situation as a whole, both within the country and the whole world. It turns out that the valuation and management of the cost of business involves accounting not only for local indicators and information from the accounting department, not only data on the closest competitors, but also more comprehensive and global facts.

Myth Four

It is believed that the value of business is directly dependent on the purposes of its evaluation. Naturally, there is an endless talk about some one-sidedness and bias of the evaluations being conducted. The fact that it will be very profitable for the seller turns out to be unprofitable for the buyer, and vice versa.

The objectives of assessing the value of business are such as to not provide any benefit to a particular person, but to do everything objectively. Ideally, when carrying out a qualitative assessment, you will receive the so-called market value of the enterprise. The cost can be called fair only if the buyer and seller own information about all the terms of the transaction, and they know what and how it is happening on the market at the moment. At the same time, neither party should conclude a contract of coercion.

Only in this case, the valuation of the business value of the company will allow both parties to learn everything they need. All justifications should be relevant to the current situation, since this expert opinion will not be passed by anyone.

Myth Five

If the business brings a loss, then there is no point in assessing it. In fact, private companies, which are considered in the general mass, may not be too cost-effective in comparison with their counterparts. In the evaluation, all capital movements of the firm are examined, which allows you to know not only the amount of profit, but also the profitability of investment capital. This term refers to the ratio of net operating profit to the average total capital invested in an enterprise or a certain type of activity, that is, the quotient of dividing net operating profit by the amount of investment. This is a difficult question, the solution of which can not be mastered by every businessman. It is for this purpose that the assessment of the investment value of a business is usually made by third-party companies that specialize in this field for a number of years.

The seller through an assessment of the business of the company will be able to convince the buyer of the legitimacy and legal literacy of the transaction, as well as justify the price that he asks. Do not forget only that these activities should be held repeatedly.

Objectives of valuation of business

In this case, you can identify several of the most significant points. Through such an assessment, you can determine the value of the firm. Many entrepreneurs do not know how much their business can really cost. Evaluation companies are able to help in resolving this issue.

Basics of assessing the value of business are such that they allow the firm to find its market niche, in which it will be well-oriented. Every businessman needs to know about the situation in the market, as well as about how colleagues and competitors work, which consumers demand. It is the supply of information about the current situation and is one of the duties of firms that are engaged in business valuation.

Evaluation and management of the business value is required to identify the current financial situation of the company, the establishment of some internal diagnosis, which must be listened to on a mandatory basis in order to use the right methods of treatment or prevention.

A conscientious entrepreneur is interested in holding such events, since they help not only broaden the horizon, but also give an idea of the current situation in commercial circles. A professional in the evaluation area will provide you with complete information on how the situation in the country and in the world, in your industry, and what changes your firm is undergoing, even if it is very conservative, is changing. Preliminary, you can show an example of valuation of business.

The information obtained in the course of these activities is irreplaceable for use in courts, as well as in the regulation of issues that involve taxation or financing. The assessment can be your reliable witness or an irreplaceable assistant-consultant. For this, a revenue approach can be used.

Business valuation, if carried out regularly, is useful in situations where an urgent decision is required about buying, selling or merging companies. Sometimes it happens that all this information is required here and now, otherwise the deal may fail, so there is simply no time left to call the appraisers and conduct their work. If you have documents that contain information on the current assessment, then it will be quite easy to use them, you only need to make certain amendments to them.

conclusions

Business is not a simple phenomenon that we face every day. Own enterprise is a business that requires not only financial but also temporary expenses, providing the present and the future for you and your family. Therefore, any assessment activities are important to conduct regularly, using for this professional resources, which set themselves the necessary tasks.

Business valuation conducted by these experts provides important and useful information that will be useful in various situations. It may be necessary to conclude a transaction, sell the company, debate with the tax authorities or search for investors, for which it is useful to know that your business is capable of increasing their capital, and here different approaches are used to assess the value of the business.