Business valuations may be required for several purposes, for example for the purpose of a merger or acquisition, a legal or fiscal restructuring or in case of a dispute between shareholders. The central line of thought in business valuations, is that the value of your company is determined by the capacity to generate future earnings. This doesn’t mean that past performances are not taken into account. However, past results do not guarantee future results.
The golden rule of valuation is: it’s not just about assets, but the capacity to generate future earnings. Or to express it more visually; what would be the value of high-tech production equipment when the company fails to obtain orders.
The preceding implies that business valuation is not an exact science. There are many methods, some more appropriate than others. Naturally it is important that the chosen methods are implemented in a correct and consistent manner. To summarize; valuation is more than “simply doing the math”. Critical success factors of a business valuation are having a thorough understanding of the business, (transaction) experience and to be able to get an objective view of the current market circumstances. The reasoning behind a valuation is in the end just as important as the outcome. The roadmap of a valuation process can be described as follows:
1. Determining working method
- Determination of the valuation object
- Determination of the valuation moment
- Determination of the valuation method
2. Drawing up and collecting the required information
- Drawing up the questionnaire
- Discussion of the received information during a company visit
- Request supplementary information
- Constructing a valuation model
- Report valuation outcomes in a written report
- Discuss the report
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