A Basic Introduction to Business Valuation

A Basic Introduction to Business Valuation

As part of our service offering at Grid Forensic Accounting, we offer business valuations. While the name of the service is relatively self-explanatory and refers to us assessing and providing the value of a business, there is a lot more involved with the process than meets the eye. Many fall foul of unscrupulous people or basic calculation systems that merely thumb suck and pick a number, but business valuations are not purely subjective. Because everyone deserves a fair business valuation, we have put together a basic introduction to business valuations that will equip and empower you when the time comes.

Who would need a business valuation?

Business valuations are applicable in a number of scenarios. Examples include:

  • The business owner wants to sell their business or part of their business.
  • The business owner requires financing for
    • Debt
    • Equity for the expansion of the business or for cash-flow problems
  • The business owner wants to attract new investors.

Business valuations provide a snapshot of what a business is worth should you wish to sell, buy or invest in it.

Who should perform a business valuation?

Generally speaking, a business valuation should not be performed by the owner of the business as it is usually very difficult for them to step back and perform the valuation objectively. Unfortunately, no matter how good the intentions, there will always be a slight bias on their side.

To ensure you are getting a fair valuation for your business, it is best to make use of a professional business valuator, accountant or forensic accountant.

What business valuation methods are used?

A business valuator will use one or a combination of the following business valuation methods, namely:

  • Asset approach
  • Market approach
  • Income approach

Each is given a weighting and an average is then taken to determine the fairest value for your business.

Something to keep in mindDue to different assumptions used in the various methods and approaches mentioned, business valuations can produce different results depending on the methods used, who is valuing it and the investment goals looking to be achieved.

At the end of the day, a business’ value is essentially the value agreed on between a willing
buyer and a willing seller.

The business valuation, however, provides the stepping stone for both parties to initiate discussions.

If you require assistance in initiating discussions, contact Grid Forensic Accounting for an obligation-free consultation today. Alternatively, learn more about how we can assist you here.