Periodical valuation gives insight into the company’s value development
A periodical valuation is an useful instrument to help entrepreneurs with strategic decisions and choices the company faces. A valuation gives insight into the value drivers of a company. By valuating the company every year you will be fully up to date and aware of all factors that influence the value of the company. This knowledge can be taken into account when the company’s strategy is determined.
Also, you can work with various scenarios and adapt your assumptions to get insight into the company’s value in different scenarios. This information can be very valuable in current turbulent times.
The main ingredients of a business valuation are the financial forecasts, investment projections and the risk profile of the company.
Financial forecasts and projected investments
The value of a company is based on expected future cash flows. Essential for a proper valuation is the drafting of financial forecasts, based on the company’s past and present performance. The future assumptions used, determine the value of the company. This forces business owners to consider their forecasts and their strategy.
The financial forecasts and investment projections provided by the company are important variables which influence the value of a company. A valuation offers an entrepreneur the opportunity to test different scenarios and their impact on the value of the company. In practice, the entrepreneur will gain awareness of how certain trends affect the value of your business. This provides illuminating insights into the company’s performance and value drivers.
The risk profile of the company
Another major determinant of the value of your company is the risk profile of your company. A higher company risk reduces the value of your company. As an entrepreneur you are faced with the vulnerabilities of your company, such as the dependency of the director/majority shareholder, the financial stability and the diversification of the turnover.
As an entrepreneur you can partially influence the risk your company faces. Making the company risk transparent and providing insight in the effect on the value of your company, can be very clarifying. Furthermore, the overview of your company’s risks can be an important tool to support you while making strategic decisions with regard to entrepreneurial risks and the hedging and/or reducing of those risks.
The advantage of a periodical valuation is that you are able to overview the value development of your company. You are able to examine in which extent your company realized the previously determined goals. Additionally entrepreneurs gain insight in which extent entrepreneurial decisions affected the value of the company. By doing this periodically (yearly), one obtains a far greater feeling in the earning capacities and the value-determining elements of the company.
The goal is to use the information obtained from the valuation in such a manner that you are able to enhance the value of your company.
Match Plan has various clients for whom we conduct periodical valuations. We notice that the entrepreneurs indeed feel supported by the obtained information. This enables them to make educated entrepreneurial decisions and enhances their level of control with respect to the value development of the company.
Are you convinced of our expertise and would you like to receive advice free of obligations after reading the article above? Please feel free to contact us here.