Business valuation. Stages, approaches, methods

оценка бизнеса

Business valuation becomes more and more important when management of companies needs to make one or another decision. It can be a perfect tool for planning and management of financial and economic sphere. Using of valuation, as well as using a time tracker, can help to raise effectiveness of using of sources and to provide a higher level of safety and control.

If we talk about a complex approach to the process, business valuation according to a common meaning of the notion is setting of a real (market) cost of a functioning company. In other words, the most likely price it can be sold for. Business valuation can include valuation of local divisions of a company, basic funds or facilities.

When we need to evaluate

There are several situations when you will need to evaluate your business:

  • Basis for purchase and sale transaction of business or its part
  • Cost determination of a mortgage security on a loan
  • Investment consideration
  • A business plan development
  • Necessity of proving of a tax base

What to evaluate?

Different categories of companies can be the subjects of valuation:

  • Not big companies for as a single subject of valuation
  • Consolidated companies (associations, corporations, holdings)
  • Structure branches of companies
  • Companies of different legal organization forms
  • Banks
  • Insurance companies and others

Before making a decision to evaluate a business you should determine the aim of valuation.

Stages of valuation

Business valuation is provided by the following algorithm:

  • Gathering of information including time tracker reports on business processes of a company
  • Analysis and observation of room of the market where the company is
  • Calculations on the basis of different approaches and methods including data from special time tracker reports set by the settings of a time tracker of a company
  • Agreement of results got by evaluating using different approaches and methods
  • Making a report on valuation

Approaches to business valuation

Nowadays there is a certain methodology of business valuation. There are three different approaches:

  • Income approach
  • Cost approach
  • Comparative approach

Income approach

Income approach works when it is possible to anticipate future profits. It is based on determining of business cost or its parts by counting of current cost of profit expected in the future.

Income of a company is the basis of the cost value of a business. Analytical reports of time trackers show the effectiveness of business processes determining the value of a business.

Cost approach

Cost approach includes two methods:

  • Capitalization method

It is based on calculation of efficiency of using of assets including the fact of their profitability. It doesn’t need determining of cost of non-material and material assets. It is used when profits are constant and positive in time.

  • Discounted cash flow method

It is based on prediction of future cash flows which come to the current cost at the rate of discount. It doesn’t need determining of cost of non-material and material assets.

Comparative approach

Comparative approach includes three methods:

  • Branch indexes method
  • Market of fund method
  • Deal method

Using of one or other approach depends on specific characteristics of business and will help you to provide correct evaluation of your business.