Business valuations can be used for many different purposes. Independent third-party appraisals carried out by a business valuation firm may be used by national or community banks, credit unions and other small business service providers. The value of a business may become relevant in case of disputes involving taxes or divorce, or in buy-sell agreements or if a business is to be sold. Business valuations may also be used to make comparisons between similar businesses.
What are business valuations used for?
An appraisal carried out by a business valuation firm is an independent assessment of the worth, assets and potential of that business. An independent third party appraisal can be used to resolve disputes on estate and gift taxes, in cases of divorce, and if a business is being sold. In addition, financial officers connected with banks and credit unions may rely on such an appraisal before making any decisions regarding the business.
Business owners too may find it helpful to have regular third-party appraisals. Such appraisals would provide a baseline for evaluation, future planning, and other major decisions. They can also be used by valuation professionals, business intermediaries and other business advisors. Business valuations can also be used to make comparisons between similar businesses.
Who should carry out small business valuations?
An independent appraisal carried out by a business valuation firm is considered more reliable than one carried out by the business owner. This is because a third party lacks the blind spots that the owner or manager may have developed over time. From the owner’s point of view, an independent valuation has the value of objectivity.
An impartial observer trained in business evaluation services can provide a credible and accurate report in a very short time. Using the latest software, a business valuation report can be produced in as little as minute minutes, when all relevant information is available.
What does business valuation analysis measure?
Even though a business valuation is an economic analysis, the results are not absolute. The outcome depends on the purpose for which the valuation was carried out. The standard of value refers to how business value is measured and the premise of value refers to the circumstances under which the valuation is carried out.
Business valuation tools can be used to compare similar businesses, to assess the potential earnings or income of a business or to measure its assets for a risk assessment. Business valuation firms rely primarily on income statements and balance sheets to carry out an appraisal. Typically, financial information from the preceding three- to five-year period is used.
A business valuation firm can produce an impartial third-party appraisal that can be used for various legal, financial, and strategic planning purposes. New business appraisal software ensures that the reports will be accurate and timely.