The main considerations to be aware of before performing a business valuation are the purpose of doing a business valuation and the availability of information and data to perform one.
The understanding and preparation of the two aforementioned considerations have will lead to varying outcomes.
Preparation and refinement of Financial Statements
As a gauge, half of a Business Valuation is a number crunching process; two major sources of data that you will be looking at are the Income Statement and the Balance Sheet of past years.
Therefore it is necessary to clean up your books appropriately before a valuation can be conducted. It is recommended to remind your company’s internal or external accountant/auditor to prepare the complete financial statements that include profit loss statements and balance sheets.
Understanding the type of Business Valuation Methods
There are three main approaches to conduct a business valuation; Income method, Asset method, and lastly the Market method. It is always prudent to consider application of more than one method to improve completeness of finding, and thereby increasing credibility of result.
Whilst this step is more applicable to the experts preparing the business valuation, it can be very beneficial that the business owner provides their interpretation of what type of business valuation methods apply to their business. It provides the valuer with an additional perspective and perhaps aid in provided a more accurate valuation.
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