Wiley Financial

Market and economic conditions change every day. Economic climate refers to a country’s economic conditions, including its ability to produce goods, services, and jobs. In the business world, everything is interconnected, and any change in economic conditions affects a business’s prospects.

If you are planning a business valuation in Las Vegas, it is necessary to understand the market. Timing can be crucial because there are several ways in which the economic climate impacts business valuations.

What Does Business Valuation Involve?

Business valuation involves valuing a business’s ability to operate successfully in the future. Investors want to ensure that the company they are investing in will bear fruit in the future. Thus, different methods are applied depending on the age, size, and type of business, but all the methods require studying the economic climate.

There are many methods and approaches for business valuation. For example, new businesses often use the Market Approach, where they resort to comparable transactions corresponding to similar companies for valuation.

One of the most common methods for ongoing businesses is the Discounted Cash Flow Method. The method involves a near-accurate estimation of the business’s profits for the coming years, so the investors can ascertain whether the company is worth investing in.

Every business uses a business valuation method that requires studying the market closely to assess whether investing is profitable.

How Are Businesses Affected by the Economic Climate?

Whether it is estimating a company’s profit or studying other companies, there are certain factors that business valuers must look into during business valuation in Las Vegas.

Changing Interest Rates

One of the major functions of the Federal Reserve is to keep interest rates in check, so investments are boosted, and money doesn’t leak from the economy. Increased interest rates mean business owners must pay higher interest to the banks. It is bad news for small and large businesses, as it increases debt and lowers operating profit.

On the other hand, if interest rates are low, companies pay less to the banks, allowing them to invest the money back in their businesses.

For consumers, it means different things, though. As businesses are also consumers, low-interest rates encourage them to take out a business loan. But it can result in a huge influx of money in the market, which isn’t good for the economy.

Thus, the Federal Reserve keeps a close eye on interest rates. Suppose the interest rates keep fluctuating regularly, and the business requires a regular influx of money. In that case, investors might be reluctant to invest in your business, as your profit and loss account will not present an attractive picture.

Levels of Employment

The economy runs in cycles. People get jobs, acquire spending capacity, and demand goods and services, which requires industries to produce more goods and services, for which they need more people, and this cycle goes on.

A country with a high unemployment rate has more people but less demand. It results in less employment and, thus, less spending.

Levels of employment in a country directly impacts its businesses and their growth. Thus, the government’s job is to ensure a favorable atmosphere for businesses to thrive and generate more employment.

Consumer Spending

Having a job doesn’t necessarily mean having higher spending power. Numerous goods and services are divided into different classes on various bases, such as necessary, luxury, demerit, and free.

Some products are necessary and are always in demand, such as food. Then some items are bought when customers have spare purchasing power, e.g., AC, car, and other luxury items.

Not every industry has demand, which plays a crucial role in business valuation in Las Vegas. The business valuer is required to understand the business, the relevant industry, its growth prospects, and how changing economic conditions can impact it. For example, during a financial crisis, the demand for luxury products falls while the demand for necessary products increases. An example is the increased demand for grains and medicines during the COVID-19 pandemic.

In a healthy economy, consumers have spending power, which creates demand, and results in production.

Conclusion

No matter how small a business is, it is impacted by the economic climate, and thus, business valuers need to undertake an in-depth assessment of every relevant factor. Without a proper study, presenting a true and fair view of a company’s future is impossible, which can be misleading to investors. The above blog has discussed the economic climate’s impact on business valuation in Las Vegas, which must be helpful for you to understand its relevance and importance.

A company’s growth is your growth. There is no doubt that you want your company to grow every year. The more it grows, the more profit it generates, and the better it is for your personal, employee, industry, and economic growth.

A company’s growth is measured by its worth. The net worth of a company is evident in how much sales it generates, the profit it makes, its intrinsic value, its growth rate every year, its customer base, and its growth prospects.

A company with a stagnant growth rate is not attractive to investors. If you plan to retire from your business and sell it, you must take measures to increase your company’s valuation. Keep in mind that this is not an overnight job. Increasing your company’s worth before undergoing business valuation in Colorado takes time and continuous effort.

This guide will help you learn what crucial tips you can use to increase company worth. With Wiley Financial Services’ proven track record, you can rest assured your company is in safe hands.

How To Increase the Net Worth of a Company:

At Wiley Financial Services, our experts suggest the following ways to increase your company’s net worth.

Make a Growth Plan

How do you plan to see your company in the next five years? Do you have a plan?

A lack of a plan means a lack of vision. A vision states what you intend to do, how much growth you are predicting, what you are doing to achieve that growth target, how you intend to maximize your revenues and deal with expenses, and how much investment you intend to make in the future years, etc.

These are the questions every business owner must ask and have answers to. Any investor can see whether you are running your business with foresight or are just staying afloat.

If you want to grow, you must have a growth plan. It requires an in-depth study of the market, setting goals, and employing resources to achieve them. How you have done so far also helps you evolve a plan for the future.

Diversify

It is often said in terms of investment that “one should never put all his eggs in one basket.” It also holds true for businesses and their revenue-generation model.

Revenue-generation models work on a pyramid model, often called the “Pareto analysis“. It states that 80% of your revenue comes from 20% of clients. However, no customer accounts for more than 10% of your sales. But it is risky, as losing one major client can significantly affect revenues.

We advise that you diversify your customer base. This can be crucial if you want to attract investors.

Investors will be skeptical of investing in your business if they see that your revenue is concentrated on only a few clients, and they might leave when they realize the company is changing hands.

Improve Cashflows

Profits and cashflows are two separate terms. Cashflow refers to the cash left with you after paying all your expenses. For example, a firm might have millions of revenues and profits and still have negative cashflows due to factors such as longer debtor turnover ratio, negative inventory turnover ratio, etc., which results in more outflow of cash than inflow.

This requires encouraging customers to pay early, balancing creditor payments and debtor receipts, managing stocks and supplies, and considering the sale of assets no longer required.

Build a Core Team

When you establish a company from scratch, there is no doubt that several processes can’t work without you. Many owners take pride in the fact that they are the whole and soul of their company; major operations for the business can’t function without them.

Unfortunately, this fact proves to be a disadvantage when you are looking to sell your business in the future. In such cases, the business can be doomed if the owner sells or something unwanted happens.

Investors are reluctant to invest in businesses like this, as they might lose a significant customer base, and key business operations might fail once the owner is no longer involved.

To prevent this, you must invest your time in building a core team who can carry out the business as usual in your absence. This should not be taken as a sales tactic aimed at investors; having a strong core management team allows you to focus on business expansion rather than engaging yourself in day-to-day mundane business operations.

Protect Your Business

Operating a business is not easy, especially if you are in the manufacturing industry. Therefore, creating a “moat” for your business is essential to protect it from unnecessary lawsuits and competitors.

What are you required to do?

You must be informed of everything concerning your business, the patents, the areas in which they protect you, the intellectual property rights, etc.

Engage in long-term contracts and review them occasionally to ensure their relevance and stronghold.

Aim for exclusive distribution rights in certain geographical areas where your customer base is loyal.

Engage in reliable distribution channels that aim at timely product delivery.

Create a stronghold in your areas and create barriers to competitors’ entry.

The points discussed above help you create a competitive edge, and it is not an overnight job. It requires a plan in place.

Predict Future Profitability

A business’s future can be perceived by its past performance. Your business practices ensure a solid track record of profitable business, which attracts investors. Investors aim to invest in a company with a promising future that shows considerable growth areas and, thus, increased revenues.

This all is part of a business valuation in Colorado that requires business valuers to predict future cash flows to estimate the business’s growth to a certain extent, which can convince investors of the company’s bright future. But only a proven past record can build the milestone for the company’s future profitability.

Business Valuations In Colorado for Your Company

Whether you aim to sell your business or not, improving your company’s worth is imperative. It plays a significant role in boosting stakeholders’ confidence, securing a loan, and promising customers of long-term relationships.

The tips mentioned above would be best to follow from day one of establishing your business, but it’s always a good time to start increasing your company’s value.

For more information and valuable insights on improving your company’s net worth, contact Wiley Financial Services today.

When you are a company, there are different ways to assess your worth, and each is used differently to determine the company’s worth. For example, while shareholders are interested in a high market value, investors are keen on the book value of a company along with other factors to assess the company’s true value.

A company has numerous stakeholders, and each one of them uses the company’s financial information differently.

This blog discusses everything you need to know about book value. Since it also plays a significant role in business valuation, companies are advised to increase their book value, as it is crucial for business transactions in the future.

You can contact Wiley Financial Services anytime to help you with the business valuation in Utah.

What Is the Book Value of a Company?

A company’s financial statements are called its books. These books contain historical information about the company, for example, assets, liabilities, cash flows, and fund flows. These financial statements are not affected by the market but by routine business operations. Since all assets and liabilities are recorded at historical costs in these statements, it is called the book value of the balance sheet items.

The book value of a company is the difference between the historical costs of its assets and liabilities. For example, a machine was purchased for $10,000. It was recorded in the books for $10,000. But it will not always remain the same. The company’s earnings will accumulate due to the purchase, but the machine will depreciate over time.

Since all these changes are recorded in the company’s books, they represent the true and fair value of the company’s assets and liabilities.

What Does The Book Value Of A Company Mean?

The following formula calculates the book value of a company:

Book Value= All Assets- All Liabilities

You must be wondering if it is similar to the company’s net worth.

That’s correct. The book value represents, theoretically, the amount the company shareholders will receive in the event of liquidation.

But it isn’t that simple. For example, there are 100000 authorized shares issued by the company at $1 per share. Its net book value is calculated at $60000.

Now, if $60000 is divided among 100000 shareholders, the shareholders will receive $0.6 per share while they invested $1 per share.

What Is Price-To-Book Ratio?

The price-to-Book ratio refers to the ratio of a company’s share’s market price and its book value.

The formula of the Price-to-Book ratio is:

Price-to-Book Ratio= Market Value per Share/ Book value per Share

Market price represents the current market price of the company’s share.

Book value represents the share price recorded in the books.

Why Is The Price-To-Book Ratio Important?

Price-to-Book ratio signifies the price the shareholders are ready to pay in the open market for the company’s share against its book value. It helps you define whether the stock is undervalued or overvalued.

It can be understood with an example.

Suppose a company has authorized equity share capital of 100000 shares to be issued at $1 per share. Its paid-up capital is 100000 shares issued at $1 per share.

Here, the book value of the share is $1, which is recorded in the books. The shares are subscribed based on the company’s performance and shareholders’ confidence. Presently, the shares are traded in the market at $2. Anything received above the book value is recorded in the books as the share premium.

Here, the market value per share is $2.

Hence, price to book ratio is $2/$1 = 2.

It signifies the shareholders’ perception of the company.

A company that performs well has a good market reputation and is known to generate sufficient profits is sought by shareholders. They believe that if they invest in the company, it will pay them well in the future. These facts drive them to pay even more for a share.

So, if a share comes on the market and is subscribed by more people than it can be issued to, its prices rise due to high demand. It is called the overvaluation of shares.

On the contrary, if a company fails to convince the mass of its future, the demand lessens, and the market price of the share falls below its book value. It is called the undervaluation of shares.

The price-to-book ratio represents overvaluation and undervaluation.

How Does It Work For Non-Listed Companies?

The price-to-book ratio works effectively for listed companies, but it’s not the same for non-listed companies. You probably own most of the company shares if you have a private company. Thus, a comparative method is used. The market is studied for companies similar in size, net worth, market, future growth prospects, and other multiples.

Investors desire to ascertain the amount they must pay for the company, which is currently prevalent in the market for similar companies.

What Is A Good Book Value?

The price-to-Book ratio is often considered to ascertain whether a company’s book value is good. A price-to-book ratio of greater than 1 is considered good, but it is not a reliable measure.

A good book value is different for every industry and business based on its size and future prospects. A well-run business has a good book value, while a similar business lacking in sound decision-making and planning find it hard to compete and maintain a good book value.

Is Good Book Value Not Relevant for Business Valuation?

Since book value only reflects the company’s net worth, which is based on past data, it does not indicate how the company will perform in the future. Deducting liabilities from assets only reflects how much is the company’s equity, but investors don’t purchase a business to sell it and make money. The aim is to generate revenue for the foreseeable future.

Thus, the book value of a business is used in business valuation, but the decision to buy a business does not solely rely on the book value of a company.

Business Valuation In California

An accurate business valuation can change your future. The right approach by a team of experienced professionals can help you attract investors for your business and make informed decisions.

At Wiley Financial Services, we are dedicated to offering you the best business valuation services in California, Utah, and Arizona. With 20 years of experience under our belt, we boast of offering our business valuation services to many clients from various niches.

Contact us today for more information about our services!

Although local accountants and investment banking firms can conduct a business appraisal, it is prudent to consult a reputable appraiser. Wiley Financial has been an Arizona business appraiser for over 20 years. We can help you determine the accurate company’s value.

Things to consider when choosing a business appraiser

Certification

One of the most important factors to consider when choosing a business appraiser is their certification. Look for an appraiser certified by a professional organization, such as the American Society of Appraisers or the Institute of Business Appraisers. It shows that the appraiser has the necessary training and experience to

Responsibility

You need to research the company and determine its responsibility before hiring them. Check whether the company has enough appraisers and if they offer periodic updates to the client. As you’d expect, any business deserves prompt updates; as such, they should be able to provide real-time status.

Exceptional responsibility helps the company build trust among clients. Besides, it shows that they value you. So, if you want timely appraisals, consult a responsible appraiser.

Trust

You need to check whether the company is trustworthy. Does it live up to its name? Does it offer timely assistance? These are some questions you must ask before settling for an appraiser in Arizona.

You should check their speed of response to a query. Furthermore, you should check reviews from current and former clients. They will give you an idea of whether the company is functioning in an organized and efficient way.

Ask for a list of clients they have worked with in the past, and contact those clients to ask about their experience with the appraiser. It can give you a good sense of the appraiser’s professionalism, expertise, and reliability.

Confidentiality

When hiring an Arizona business appraiser, you must confirm that they follow the pertinent laws and ethics for handling client appraisals. Ensure the company embraces confidentiality. Otherwise, you might find your appraisal documents on the public portal. For this, you need to hire reputable appraisers such as Wiley Financial.

Professionalism

When you contact or walk into an appraiser’s office, it should give you a feeling of expertise. You can ask for licenses and accreditations. Every reputable appraiser in Arizona should be accredited and licensed by the relevant authorities. Professionalism helps improve service delivery and accountability.

Cost

Finally, you need to consider the cost of hiring your desired appraiser. Check the charges are fair and not excessive. Paying a higher price does not mean you will get the best services. Unfortunately, some service providers will try to get away with high rates while offering substandard services.

Things to know to get an accurate business valuation

1.Understand your competition

A business valuation can help you determine your firm’s competitive advantage. You need to understand what sets your company apart from your competitors. For example, do you have a popular brand name or a patent that is impossible to replicate?

As a business owner, you can gauge your competitive edge by looking at where your competitors are trading. Here are some ways to understand your competition:

Research your competition

First, you need to know your competitors thoroughly. Start by learning as much as you can about them. For example, you can gather data about their target market, services, pricing, and unique selling points. You can then use this data to identify areas you need to improve.

Analyze your competitors’ strengths and weaknesses

Once you have a solid understanding of your competitors, take time to analyze their strengths and weaknesses. As you’d expect, it will help you identify areas you outshine them and those you can improve on. With persistent improvements, you will gradually beat them in their game.

Track their activities

Keep abreast of what your competitors are doing. You can do this by regularly monitoring their websites, social media accounts, and other online platforms. It will give you valuable insight into their marketing strategies, new product launches, and other important developments.

Understand their target market

Knowing who your competitors are targeting will give you a better idea of the type of customers you’re competing for. It can help you tailor your marketing efforts and ensure you’re targeting the right audience.

Identify any gaps in the market

Look for opportunities to offer products or services your competitors aren’t currently offering. It can give you a competitive advantage and help you attract new customers.

By following these steps, you will better understand your competitors. It will help you make informed decisions that will help improve your competitive edge.

2. Evaluate your growth potential

Generally, Arizona business appraisers look at net income, revenue, and profit. Simply put, earnings before interest, taxes, depreciation and amortization (EBITDA). For accurate business valuation, appraisers will also consider a five-year growth forecast.

Your firm’s growth potential is the product of the overall market size and the company’s market share. It depends on the underlying market and the barriers to entry for potential competitors.

Factors to consider when evaluating a company’s growth include the following:

Financial performance

Financial performance is one of the best indicators of your company’s growth potential. To understand the firm’s current financial health, look at key metrics such as revenue, profit margins, and cash flow. It can help you predict the company’s future performance. You should also look at the company’s financial history to see if it has consistently grown.

Market trends

Another important factor to consider is the overall market trends in the company’s industry. Is the market growing or shrinking? Are any new technologies or trends impacting the company’s growth potential? With this in mind, you can identify areas you can do away with and those you can bring on board.

Competitive landscape

It’s also important to assess the competitive landscape in your company’s industry. How does the company compare to its competitors in Arizona in terms of market share, product offerings, and financial performance?

Are there any new competitors emerging that could pose a threat to the company’s growth? It can help you make informed decisions to help you stay relevant despite the new competitors.

Management team

The management team plays a key role in driving a company’s growth. Look at your team’s experience, track record, and leadership style to see if they have the skills and vision to move the company forward.

Innovation and growth strategies

Finally, look at the company’s innovation and growth strategies. Do you have a clear plan for how it will grow and expand? Are any new products or services in the pipeline that could drive growth?

Considering the above aspects can help you better understand your company’s growth potential.

3.Consider quantitative and qualitative indicators

To identify quantitative and qualitative indicators, you need to consider the sector your business is in. Is the industry scalable? Or is it fading away? You should also consider investment requirements.

Check the capital allocation that will be set aside to impact its growth in the future. Leadership also affects your business’s value. A company with a good management team will likely command a higher value in its particular sector.

4.Understand key risks

A business valuation in Arizona will typically identify the positives. However, it should also consider the negatives that would affect the company’s value. For example, if a company is associated with a certain person, it might lose value if sold to a third party.

Besides, a lack of marketability can reduce your company’s value. You should evaluate whether a technology change can render your business obsolete. You can take the following steps to understand your key risks.

Conduct a risk assessment

Start by conducting a thorough risk assessment to identify potential risks that could impact your business. It should include an analysis of internal and external factors, such as market trends, competition, and changes in technology or regulations.

Identify the potential consequences

Once you have identified potential risks, the next step is to assess the possible consequences of each risk. It will help you prioritize the risks and determine which ones need to be addressed first.

Assign a probability and impact rating

To help you prioritize risks, assigning each risk, a likelihood and impact rating can be useful. For example, a risk with a high probability of occurring and a high potential impact would be considered a top priority.

Develop a risk management plan

Once you have identified and prioritized your key risks, developing a risk management plan to address each risk is next. This should include strategies for mitigating the risks and contingency plans in case the risks do occur.

Monitor and review risks regularly

Finally, monitoring and reviewing your key risks regularly is important to ensure that your risk management plan is effective and that new risks are identified and addressed.

Conclusion

Getting the right appraiser will determine whether you will get an accurate business valuation. You should consider their certification, professionalism, trust, and confidentiality. Wiley Financial has you sorted if you are looking for an Arizona business appraiser. Click Here to book a consultation.

A business appraisal can help you revalue your business for different reasons. But how often should your business be re-valued? Simple answer: annually. However, certain conditions, such as industry dynamics, can warrant frequent valuation. You can reach Wiley Financial for business appraisal in Phoenix, AZ if you need your business re-valued.

How Often Should You Re-Value Your Business?

Ideally, you should re-value your business annually, especially if the company has multiple owners. A business valuation is valid for up to a year from the valuation date. However, cash flow, industry dynamics, concentration risks, and time until exit can warrant re-evaluation at least twice a year.

And this can be done through a business appraisal. An appraisal is an expert’s estimate of the value of an asset. Let’s see how the above factors affect the frequency of business appraisal.

Factors Affecting the Frequency of Re-Valuing Your Business

Cash Flow and Profitability

Your business’s cash flow and profitability are important aspects affecting the frequency of business appraisal. If your business has little to no cash flow, then there’s no need for frequent re-valuing. On the other hand, if the company is profitable, you can conduct periodic appraisals.

Time Until Exit

A business appraisal can help one understand the key value drivers and risks. With this information, you can identify opportunities that can help improve the company’s value as you move closer to selling it. Annual appraisals will be ideal if you are a long way from selling it. If you are closer to exiting the business, you should conduct frequent appraisals.

Industry Dynamics

You don’t need frequent appraisals if your business is in a stable industry, such as pharmaceuticals or food, with fewer large swings. However, companies operating in volatile sectors such as technology should have more frequent appraisals.

Concentration Risks

For small companies, significant swings in value can result from concentrations of businesses with a small number of customers, concentration in a limited geographic market or a static number of products or services. As you’d expect, more concentration risks make a firm’s value more volatile. As such, you should measure its value more frequently.

Multiple Owners

A company with multiple owners should be re-valued annually to keep everyone on the same page. It helps reduce disagreement among shareholders should one of the owners decide to buy out. An annual appraisal helps update the pricing in the buy-sell agreement.

Here at Wiley Financial, we perform business appraisals in Phoenix, AZ, as frequently as you want. We use industry-standard approaches and methods, providing you with the most accurate company value.

The Purpose of Business Appraisal

There are many reasons why you should conduct a business appraisal. Here are the most common:

Succession Planning

Business succession comes in various forms, the most common being gifting ownership to the family. Furthermore, a business can be sold to third parties or employees. This transfer type is generally based on the company’s value which is determined through appraisal.

Estate and Gift Tax

You might need a business appraisal to file an estate tax return. It will help guide the personal representative to fulfill the terms of the decedent’s will.

As long as the federal estate tax remains in place, it is likely that giving a gift to minimize estate tax will require the valuation of a business or a business interest.

Mergers and Acquisitions

Business appraisal is performed when one company acquires another. The buyer can reorganize its capital structure or split it up. An appraisal is also necessary when a company files for bankruptcy while liquidating or reorganizing.

A merger in Phoenix, AZ, will require both companies to perform an appraisal, while an acquisition may require only one party. A professional appraiser such as Wiley Financial should be involved for accurate company value.

Buy/Sell Agreements

A business appraisal may be necessary for a company to develop a buy/sell agreement. The agreement can be essential for business or tax purposes. An appraisal may be required to determine the company’s fair value if the sale is between related parties.

Besides, the agreement enables an owner to acquire another owner’s interest if they decide to exit or retire. The agreement contains the price at which the remaining owner will gain the interest of the exiting party.

Divorce Issues

When a private owner divorces, an appraisal may be required to divide the marital assets. Ideally, both parties will obtain separate valuations. However, they can hire a single appraiser, especially in collaborative divorces.

Insurance Purposes

Closely-held business owners in Phoenix, AZ, will often seek a business appraisal to determine the ideal value to cover their business if something uneventful were to happen to them. The owner will purchase the value as “key person insurance.”

If something happens, the insurance company will pay the owner’s family to take up the owner’s role or buy themselves out of it. It is, however, dependent on the key person’s insurance policy.

Financing

Financial institutions and the SBA may require a business appraisal to underwrite and approve a loan, especially when acquiring a business or a business interest. Typically, financial statements are presented at a historical cost.  An appraisal will provide the bank with fair market value amounts supporting a loan.

ESOP

ESOP (employee stock ownership plan) is an employee benefit that enables investment in employer common stock. They provide liquidity, capital, and tax advantages to private companies that do not want to go public.

An ESOP requires an annual appraisal, which determines the price per share for the employees who are the beneficiaries. It should comply with the Department of Labor and Internal Revenue Service rules.

Shareholders and Partnership Disputes

Ownership disputes arise from different circumstances, such as disagreements between owners or conflicts with dissolution or a merger. In Phoenix, AZ, businesses can dissolve, merge, or restructure without unanimous ownership consent.

Types of Appraisals

Equipment Appraisal

Equipment appraisal uses three valuation types: orderly liquidation, fair market value, and forced liquidation value.

Fair Market Value (FMV)

FMV is the price at which the buyer and the seller of a good or product have agreed independently. It usually represents the accurate valuation of the goods or services being traded. The conditions include the following:

Both parties must not be pressured to execute the transaction.

Both parties should be given a reasonable amount of time to completethe transaction.

The buyer and the seller must have their interest in mind.

Both parties must be equally and reasonably knowledgeable about the good or product in question.

The fair market value represents the economic principles determining the degree of freedom and openness in any market activity. FMV is used for legal situations, taxation, and insurance.

Orderly Liquidation Value (OLV)

OLV is an estimate of the gross amount that a tangible asset would fetch in an action-style liquidation. The seller must sell their assets on an “as-is, where-is” basis. It assumes the seller will be given reasonable time to find all buyers, and the seller will have control of the sale process.

Forced Liquidation Value (FLV)

Unlike OLV, FLV does not give control to the seller. It is the amount of money a company in Phoenix, AZ, would fetch if it were to sell its assets in an auction immediately. It aims to identify a company’s financial position in the worst possible situation. The assumption is that the company will sell its assets in the quickest time possible.

Restaurant Appraisal

Some common parts of restaurant appraisal include the value of your equipment and assets. Other aspects, such as the restaurant’s location and local economy, are fluid.

A restaurant’s reputation and brand recognition are a consideration, especially for well-established restaurant chains. Methods used in restaurant appraisal are income, market, and asset valuation.

Income valuation: It is the simplest method, which predicts how much income your restaurant will generate in the future based on historical data. It is,however, not ideal for fairly new restaurants.

Market valuation:While your Phoenix, AZ restaurant profits are important, the method focuses on the potential for your restaurant to do well. It is, therefore, an ideal method for new restaurants.

Asset valuation: It is considered an accounting exercise based on the value of the restaurant’s assets and liabilities. It is the ideal option for you if you want a quick sale.

Machinery Appraisal

As the name suggests, it is the process of determining the value of equipment a company owns. It helps you budget for parts, repairs, and when to sell or acquire machinery. It uses three methods: cost, income, and comparison.

Cost method:This method is used to appraise unique or outdated items. It considers the quality and age of the product. Based on the product’s original cost, the appraisal is performed from residual value.

Income method:The method considers the residual income equipment may accrue over time. While the value decreases as the machine ages, it can still be used and generate income when sold.

Sale comparison:Certified appraisers such as Wiley Financial prefer this method to evaluate the value of used equipment. It compares price points for similar used equipment sold in Phoenix, AZ.

Conclusion

As you can see, you should have your business re-valued at least once per year. However, industry dynamics and ownership might affect the re-valuing frequency. If you need frequent or annual business appraisal in Phoenix, AZ, Wiley Financial has got you sorted. Reach out to us to book a consultation.

Business valuation in Arizona is a crucial step for startups seeking capital to accelerate their service provision. This article examines the importance of business valuation, methods, and limitations. So, let’s get into it.

Why is startup valuation important?

A startup can only develop its concepts when it has enough capital. A startup with insufficient capital is destined to fail. Raising money is necessary to warrant a startup’s success, besides growing your company’s technical and managerial side.

Startup valuation is an approximation that yields a relative number, signaling the growth potential of a young company. While the approximation gets outdated quickly, it enables investors to make informed decisions.

An investor might want to size their investment according to the expected returns. In contrast, corporate venture capitalists might want to access the startup’s innovation rather than benefit from fast growth and exit.

Besides, a startup needs capital for hiring staff, office space, marketing, prototyping, etc. Estimating your startup’s value is the only way you can approach an investor for funding. There are several startup valuation methods valuators use.

Startup valuation methods

The Berkus method

The Berkus method is the brainchild of Dave Berkus, a venture capitalist whose main aim is to find the value of pre-revenue startups. The method identifies and studies five crucial startup areas and assigns a dollar amount ranging from zero to $500,000. They include:

A soundidea: The company has a brilliant business idea.

Quality management team:The business has an efficient management team.

Prototype:The firm has a working product that attracts clients.

Strategic relationships: The business has robust partners in its industry.

Product sales:The company shows future growth potential.

To calculate the pre-revenue value, the method adds up to $500K for each area. It allows investors to do precise valuations and not base them on projected revenues. The theoretical pre-revenue and post-revenue valuations should not exceed $2 million and $2.5 million, respectively.

Scorecard valuation method

The scorecard valuation is another popular method for startups in Arizona. It compares your startup with similar startups which have received funding with added criteria, comparing areas such as region, market, and stage. Once investors come up with a valuation, it will help them decide how much they can invest in your business.

They will compare the following qualities and assign a percentage depending on your startup’s performance.

Team’s strength: 0-30%

Opportunity size: 0-25%

Product or technology: 0-15%

Need for additional funding: 0-5%

Environment: 0-10%

Marketing and sales: 0-10%

Other: 0-5%

You’ll then assign a comparative percentage for each quality. Ideally, you can be at par (100%), below average (< 100%), or above average (>100%). For example, if Company A has a strong team than its competitors, you can give it a 140% comparative percentage.

You’ll multiply 30% by 140%, getting a factor of 0.42. Sum the total of each quality to get the value. Finally, multiply the total by the average valuation in your business sector. It will give your company’s pre-revenue valuation.

Discounted cash flow method

If a company in Houston is insolvent, it cannot use the member’s voluntary liquidation; instead, it uses the creditor’s voluntary liquidation (CVL). While a voluntary method, company directors use it as the last resort when options are few. If the company decides on CVL, it is best to seek professional advice before debts escalate.

The company will first inform the shareholders before appointing a professional insolvency practitioner. Once selected, they take charge of the process, ensuring the company winds down legally. The firm’s assets will be sold, with the funds extracted used to repay the company’s creditors.

The company’s shareholders will receive the remaining amount, if any. The director will pay the insolvency practitioner’s fee. And if there’s no money left, they will have to pay from their pockets.

Compulsory liquidation

A startup can also use the discounted cash flow (DCF) method. However, it is advisable to consult the services of a professional when using the method. Simply put, DCF is a valuation method that estimates a startup’s value using its projected future cash flows.

In short, it determines the current value of a firm based on projections of how much money it will generate in the future. Investors will take the projected future cash flows and apply a discount rate. If the discount rate is higher, it signals a risky investment.

This method’s chief advantage is that it enables investors to determine whether an investment is worth the salt. Besides, its projections can be adjusted to provide results for different scenarios. The downside is that it relies on future predictions and not actual figures. One needs to estimate the discount rate and cash flows correctly.

Venture capital method

As the name suggests, most venture capitalists in Arizona use this method to value startups. It aims to reflect the mind of an investor looking to exit at a specific time, ideally between 2 and 5 years.

The VC method will multiply the expected earnings with market multiples such as the PE ratio. The total is the equity value at the end of the specified period.

The estimated value is then discounted back at a target rate of return, which is set high to capture a business’s risk. There are, however, some limitations to this method. For one, it uses a short forecasting period and multiplies of comparable companies, which are also based on future cash flows.

Second, the method focuses only on earnings. As such, a startup owner might increase the projected revenues. Conversely, venture capitalists aim to lower earnings. It means the method is more of a negotiation game.

Cost-To-Duplicate approach

The cost-to-duplicate valuation approach focuses on the costs and expenses of creating a startup. It aims to determine how much it would cost to build a startup company in Arizona from scratch. Ideally, an investor wouldn’t allow a higher valuation than the sum of all expenses used to create the startup. However, the method does not include intangible assets such as the brand and goodwill.

It means you’ll calculate the physical assets’ fair market value. You can also include patent costs, research and development costs, and others.

One drawback of this method is its failure to capture future company sales. And overlooking intangible assets makes the cost-to-duplicate approach unreliable to many business owners.

Risk factor summation method

It is the perfect fit if you want to use a more generalized valuation method. It provides a base value based on 12 common risk factors. As such, it indicates you have compared your startup to other similar ones, determining if it has a higher or lower risk.

The method uses the following steps:

Begin with an average valuation formulated on similar startups in your region. It might be time-consuming since fetching data from a comparable company can be daunting.

Analyze your startup’s risk factors from the lowest to the highest.

As you’d expect, lower risks will increase your company’s valuation, while higher risks will decrease the company’s value.

To bolster your company’s valuation, work on the risks and develop strategies to reduce risks.

To calculate the value of your business, start with an initial valuation based on either of the above methods, like discounted cash flow. Next, increase or decrease the monetary value in $250,000 multiples based on risks affecting your business.

Ideally, you’ll give a double-plus (++) grade to low-risk and a double-minus (–) to high-risk elements. For example, if your company has a very low competition risk, you will give it a double-plus (++), equating to $500,000.  

The 12 risk factors are:

Reputation risk

Management

Business stage

Political/legislation risk

Potential lucrative exit

International risk

Litigation risk

Technology risk

Competition risk

Capital/funding risk

Manufacturing risk

Sales and marketing risk

Unfortunately, the method is more subjective than objective. Therefore, using methods such as discounted cash flow and scorecard may help.

Limitations to startup valuation

Unlike established business valuation in Arizona, evaluating a startup comes with several hiccups. They include:

● Lack of historical data

One chief challenge of startup valuation is the lack of historical financial data. Since the company has been running for a few years, they have a short track record, making it riskier to use predictive methods.

Ideally, startups generate little to no revenue while incurring massive expenses to set up their operations. They tend to have negative cash flows for the first few years.

● High bankruptcy rate

Generally, starting and running a successful company is no easy feat. In fact, research shows that 50% of startups fail within the first five years. As such, valuation will tend to reflect this high-risk level. The bankruptcy risk correlates to the years the company has been running.

Yet, startups move at different speeds. The pace at which they move from the idea stage, MVP, to a commercialized product is different. Therefore, investors should consider the startup’s growth rate in delivering its services or products.

● Dilution risk

A startup in Arizona will likely go through the first fundraising stages enabling it to develop a product, go to market, and scale. While rightly so, the valuation process is complicated since the first investors will incur the risk of seeing the value of their shares decrease over time.

Even if a venture is exceptionally successful at increasing its overall value at the exit, the value growth will be lesser for the first investors. Luckily, investors can protect themselves by veto rights or a ratchet.

Do you need a startup business valuation?

Are you liquidating your company and need a business valuation in Houston? Wiley Financial is a leading business valuation company that helps companies under liquidation determine their fair market value. This article provides solutions to challenges that arise when evaluating a liquidating company.

What is company liquidation?

Liquidation is the formal process of ending a company and distributing the assets among the claimants. The company’s directors or a third party can initiate the process. It occurs when the company cannot pay its obligations on time.

During the ending process, the company will use the remaining assets to pay its shareholders and creditors. After liquidation, the company will cease to exist with its name removed from the Companies House register.

If the company had outstanding unsecured debts, they would be written off. Liquidation can also mean selling a poor-performing asset at a lower price than the company desires.

Distribution of assets

During liquidation, a company’s assets are distributed based on the priority of the parties’ claims. The U.S. Department of Justice appoints a trustee who oversees the process. The priority goes to creditors with collateral on loans to the company.

Due to the short timeframe, they will sell the collateral, often at a throwaway price. If the earnings are insufficient, they will use the company’s remaining liquid assets to recoup the balance.

Second in line are unsecured creditors. They may include the government, employees, and bondholders. Finally, shareholders will receive the remaining assets, which is a rarity.

Types of liquidation

They are three types of liquidation for companies in Houston. They include member’s voluntary liquidation, creditor’s voluntary liquidation, and compulsory liquidation. The liquidation type is dependent on the company’s financial situation.

If a company is solvent, it can repay its debts and other liabilities within 12 months. An insolvent company cannot repay its liabilities. Therefore, based on the financial situation, a company can use either of the following liquidation procedures.

Decision function

The decision function shows the decision value of a company. It focuses on the business value calculation purpose, providing the basis for rational decisions. In short, it presents the limit of the concession willingness of a party in a conflict situation.

It represents the conditions relevant to conflict resolution (conflict-resolution-relevant facts). It also provides acceptable cases in case of an agreement. The decision function is the primary value for all the functions.

Member’s voluntary liquidationIt is the most effective way of ending a solvent company. It allows the company’s directors to voluntarily wind down a company, often due to little use of the company, especially when starting a new one. They will access the company’s retained profits at a low cost. It is widely used since the retained profits are taxed as Capital Gains rather than income. Besides, the directors can further apply for business asset disposal relief, reducing the tax rate.Creditor’s voluntary liquidation

If a company in Houston is insolvent, it cannot use the member’s voluntary liquidation; instead, it uses the creditor’s voluntary liquidation (CVL). While a voluntary method, company directors use it as the last resort when options are few. If the company decides on CVL, it is best to seek professional advice before debts escalate.

The company will first inform the shareholders before appointing a professional insolvency practitioner. Once selected, they take charge of the process, ensuring the company winds down legally. The firm’s assets will be sold, with the funds extracted used to repay the company’s creditors.

The company’s shareholders will receive the remaining amount, if any. The director will pay the insolvency practitioner’s fee. And if there’s no money left, they will have to pay from their pockets.

Compulsory liquidation

Unlike the previous liquidation methods, this process is involuntary. The courts often initiate it upon the request of a company’s creditor or creditors. The judge will determine whether compulsory liquidation is necessary.

During this process, the company’s assets and bank accounts are frozen, ensuring the directors do not extract any assets. If the court accepts the liquidation, the process will begin. It will appoint an Official Receiver to close the company, ensuring funds extracted go to outside creditors.

Once they realize all assets, the company will be closed. After this, the court will open an investigation against the company’s director. It is in a bid to unearth any wrongdoing on their side.

Causes of business liquidation

So, what causes the liquidation of companies in Houston? Let’s find out.

Improper maintenance of company records

A company’s records are no doubt confidential, containing crucial information about the firm, such as losses and profits realized. Managing such information haphazardly can warrant liquidation. It is because it can lead to data loss to competitors or, in the worst case, cybercriminals.

To mitigate this, a company ought to store its records properly. In so doing, it can eliminate many of its issues and allow for future reference. The current trend is to use accounting software to manage business records.

Failure to follow accounting guidelines

Another reason that can warrant liquidation is failure to follow stipulated accounting guidelines. Such guidelines bolster transparency, mitigating corruption within the company. As mentioned, the company’s records ought to be handled with care.

One way to go around it is to use professional accountant services. Thanks to their expertise, they can detect any wrongdoing and provide solutions.

Failure to update a company’s transactions

Business transactions should be recorded promptly to enable tracking. If a company decides to make records later, chances are high that the records will be partial.

A company that cannot produce all transaction records at the end of the year will raise eyebrows among its shareholders. Using the services of an accountant can improve updating transactions significantly.

Lack of payroll management

Employees are a company’s real assets; without them, a company cannot profit. It is, therefore, critical to improving their morale. And one way to go about it is to have a proper payroll management system.

Besides, an elaborate payroll helps you understand how much you spend to maintain your staff. If a company is hiring continuously with little cash flow, it will run into losses. Likewise, productivity will dip if it has a high-profit margin but pays employees peanuts.

Lack of proper auditing

While an internal audit is essential, companies should not overlook external audits. It helps the management to understand the gap between the current position and organizational goals.

An experienced auditor will follow the guidelines and suggestions to prevent improper audit reports. Failure to follow such guidelines can cause voluntary or involuntary liquidation.

How to solve business valuation matters when a company is liquidating

As you’ve seen, there are many reasons why a company can liquidate. During the process, it is paramount to consult business valuation in Houston. The valuator will help a company maximize the liquidation proceeds.

They can also enable the company to determine the fair market asking price. A business evaluator concludes that financial trends such as declining sales and recurring net losses may suggest the company is more valuable if liquidated.

Generally, liquidation value is relevant when the company’s historical and expected earnings don’t contribute incremental value beyond its net tangible asset value.

There are two liquidation value types:

Orderly liquidation value (OLV)

Forced liquidation value (FLV)

What is orderly liquidation value?

OLV is the amount tangible assets would fetch in an auction-style liquidation if the company were to sell the assets on an “as-is, where-is” basis. The term orderly means the company has control of the sale process. It is also given reasonable time to find a buyer.

A business valuation company will provide the company with two values: fair value and OLV. The company will use the appropriate value to support the purchase price. It is often higher than orderly liquidation value since it assumes the transaction between the seller and buyer will occur willingly.

What is forced liquidation value (FLV)?

As the name suggests, the company will not have control over the sale of its assets. FLV is the amount of money a company would receive if it were to sell its assets in an auction immediately. FLV aims to determine a company’s financial position in the worst circumstance.

It assumes the business will sell its assets in the shortest time possible at a low price. A business valuation company will take each asset and determine its value, assuming it will sell within 60 to 90 days.

The value of all assets is summed up to determine forced liquidation value. There are many assumptions in FLV. Firstly, it assumes the buyer will pay for transport from the seller’s premises. It also excludes the liquidation process cost.

Process of determining liquidation value

The evaluator will start with the company’s balance sheet considering the liabilities and assets value. While the liabilities value is accurate, the value of the assets needs to be adjusted to the current market value. They will also consider unrecorded items such as warranties, patents, customer lists, and pending lawsuits. Alternatively, a business evaluator can help a company determine the value of the business based on a buyer’s expectations and requirements. For example, a buyer can be willing to pay more than the liquidation value if the company has exceptional growth potential.

Need help?

A company that is liquidating requires the services of an expert to determine its fair market value. It can be helpful should a buyer decide to pay more than the liquidation value. If you need an expert business valuation in Houston, reach us via our contact channels.

If you are looking for business valuation in Phoenix, contact us. Wiley Financial is a leading evaluator with decades of experience. This article looks at the fundamentals of functional business valuation.

What is a functional business valuation?

Functional business valuation is the allocation of value to a company. It is done for various reasons, the chief reason being to settle a conflict between opposing parties. It evaluates the business, meaning the evaluator will include all assets and liabilities.

The evaluator in Phoenix will conduct a comprehensive analysis of the company to identify value-increasing potential. A business owner can decide whether to sell the firm or seek funding.

Concepts of business valuation

There are three primary business valuation concepts: objective, subjective, and functional.

An objective business valuation will mainly overcome a conflict of interest between opposing parties through an evaluator such as Wiley Financial. Subjective valuation does not hold a single value to a business. Instead, it suggests the value is specific and different for every involved part.

Functional business valuation is dependent on the purpose of the business valuation. It emphasizes the need to analyze the objectives, and the value of the business should be connected to these objectives.

Value types in functional business valuation

Functional business valuation has three main functions: decision, mediation/arbitration, and argumentation.Decision function

The decision function shows the decision value of a company. It focuses on the business value calculation purpose, providing the basis for rational decisions. In short, it presents the limit of the concession willingness of a party in a conflict situation.

It represents the conditions relevant to conflict resolution (conflict-resolution-relevant facts). It also provides acceptable cases in case of an agreement. The decision function is the primary value for all the functions.

Mediation/arbitration function

It is the result of the business valuation within the mediation function scope. It is meant to facilitate an agreement between a buyer and a seller regarding the conditions for the business ownership change. It is the value determined by an independent evaluator such as Wiley Financial.

As you’d expect, it contains an acceptable compromise for both parties. Besides, it does not affect the parties’ decisions but protects their interests.

Argumentation functionArgumentation value is a business value according to the argumentation function. An instrument helps evaluators develop a favorable conflict resolution for parties in an argument. It is also referred to as a prejudiced value since it is dependent on the value of the buyer and seller.

Benefits of functional business valuation

Helps track company growth

Measuring a business’s growth in Phoenix involves checking the company’s balance sheet to ensure liabilities do not outweigh assets. It also helps to identify cash at hand that can be used to pay staff and make essential payments.

One can use different approaches, such as asset valuation and industry multiples, to evaluate a company. The business owner can seek services from a professional business valuation company in Phoenix or a business transfer agent. With business valuation information, you can track the firm’s growth seamlessly.

Competitor benchmarking

If you want to know the state of the industry, business valuation is the way to go. It helps you compare similar businesses using industry benchmarks. Using these benchmarks to determine where your company ranks regarding financial health, market position, and business performance can help you make informed sales, budgeting, and finance decisions.

The business valuation report will provide crucial information such as the business’s weaknesses, strengths, and growth potential. As such, you can use this data to identify opportunities that can help you increase your business’s value.

Informed exit strategy

Business valuation is the first step if you plan on selling your firm. It helps you calculate the fair market value, enabling you to calculate the accurate price to sell your business. It will help you to get the upper hand when negotiating with potential buyers.

Besides, plan to increase the value of the company before a sale. Functional business valuation can help track the company’s growth enabling you to determine if you are meeting the commercial targets. You can also use valuation for partnership buy-out.

To get more funding

Most investors and lenders will need to know the value of your firm before committing their investment. A business valuation report will help them identify areas they can invest in, facilitating your company’s growth.

If your company has a robust balance sheet and positive cash flow, investors will identify it as a low-risk business, making a confident investment decision. At Wiley Financial, we have experienced evaluators who can help with the business valuation in Phoenix.

Helps resolve disputes

It is uncommon to have regular disputes between business owners. Such arguments are due to project delays, contract breaches, and others. And when such conflicts occur, they will turn to mediators to resolve their differences. They will present a valuation that fits their interests.

It is for this reason you need business valuation services from an expert. Wiley Financial will conduct professional business valuation in Phoenix so both parties can have a fair deal.

Helps in determining employee retention plans and benefits

Let’s face it, retaining top employees is a priority for many, if not all, businesses. And for this, they need proper compensation, which should be proportional to the business’s value. A business valuation will help you determine your firm’s value in determining employee compensation.

Reasons for a business valuation

Estate planningIf you need tax planning, you need to understand the value of your business. Keep in the value of your assets and interest in your business should not exceed the federal tax exemption amount. If it does, you’ll need professional help from an evaluator like Wiley Financial. However, you should ensure you comply with Phoenix’s regulations regardless of how small your estate is.Granting stock options

According to the IRC section 409 (A), you need a formal valuation to grant nonqualified deferred compensation, such as stock options. The rules also state that if a company is to issue stocks to its employees below the market price, they should recognize income. Failure not to observe this rule leads to heft fines and penalties.

Making donationsYou may want to donate to a favorite charity. Luckily, you do not have to have a public company. The IRS requires the recipient and donor to provide relevant tax information. If you want to make a significant donation, a legal business evaluator will have to evaluate your business. It should be done 60 days before the contribution.Creating an ESOPTo set up an ESOP, you must conduct business valuation annually. It will help you progress or productivity. Besides, valuation allows you to identify when to enter or exit an ESOP. As a small business owner, you will need a business valuation in Phoenix to know how much to deduct for shares contribution and what each employee will receive at the end of the year.LitigationA functional business valuation helps in personal and public litigation cases. Tax disputes and disagreements among shareholders can warrant valuation. The primary issue is how much a company is worth.For fairness opinionsCompanies use business valuation when negotiating a merger, management buy-out, tax planning and other legal processes. A fair opinion is a price that involved parties agree on. An evaluator will consider the terms, pricing, and conditions of the agreement and comes up with a fair opinion from a financial point of view.Defending the company's valueBesides defending the company’s value to lenders and investors, you may need to do the same to your spouse, board of advisors, and shareholders. For example, in case of a divorce case, the court will require your business to be evaluated to decide what share each spouse should get.Better business management

Businesses often have short and long-term milestones on their roadmap. As such, staying abreast of business strategies is crucial, and one way to go about it is through a regular business valuation. It helps you identify possible risks and opportunities, allowing you to make informed decisions.

With fewer blind spots, you can measure the performance of your business efficiently. A valuation should be necessary whether you are looking for long-term or short-term strategies. Contact Wiley Financial for business valuation in Phoenix.

Are you looking for business valuation in Scottsdale? Well, Wiley Financial can help you identify your small business value. In this article, we highlight steps to value a small business. Let’s dive in.

What is a business valuation?

Business valuation is the process of determining a business value. It is done for various reasons, with investment being the primary reason. There are several business valuation methods and approaches.

Evaluators will choose the most appropriate depending on the nature of your company and might analyze a company’s capital structure and management to determine its fair market value. Wiley Financial is a renowned business valuator in Scottsdale with decades of experience. Give us a call to book a consultation.

5 Simple Steps to Valuing Your Small Business in Scottsdale

So how can you value your small business? Let’s find out.1. Understand the valuationBefore valuing your business, you need to understand some essential terms. Professional evaluators in Scottsdale use them to speed up the valuation process. They include:Seller’s discretionary earnings (SDE)

SDE is a term used in EBITDA, which is earnings before interest, taxes, depreciation and amortization. It calculates the accurate profit of a company. Business owners calculate SDE to determine the company’s fair market value. As such, you’ll include all revenue your firm generates, your salary and benefits.

Ideally, SDE is ideal for small businesses, while EBITDA suits large companies. The SDE also helps a prospective buyer to understand how you came up with the business’s value.

Calculating SDECalculating your firm’s SDE is easy. First, add your pretax and pre-interest earnings. Include expenses that are deemed nonessential but are included in your business’s report. They can include charitable donations, travel, your salary, and travel. Finally, deduct liabilities from your firm’s income.SDE multiples

As you’ve seen, we use SDE to determine the actual value of your business. SDE multiples use industry standards to value your company. For example, if you use the EBITDA standard, you’ll be required to use its multiple.

However, since yours is a small company, you should use SDE because much of your expenses are personal. Also, the firm’s industry will affect the SDE multiple you will use. The company’s size, location, and assets will affect the multiple market volatility. The higher your SDE multiple, the higher the firm’s value.

Organize your finances

As you’d guess, evaluating a small company in Scottsdale is a daunting task. As such, we recommend hiring a professional accountant specializing in business valuation. Wiley Financial is such a company that can help in business valuation in Scottsdale.

However, you need solid financial records if you prefer to go alone. They will help you to do an accurate valuation. Besides, you’ll need money during the transfer of business ownership. Some of the documents you’ll need for a seamless valuation process are:

Tax filings and returns.

Proprietary documents such as licenses.

Profit and loss statement for the last three years.

An overview of your business finances.

A clear understanding of your business’s financial foundation will help you decide before selling your business.Track your assetsTo ensure you sell your business at a profit, you need to tack stock of your assets. You need a list of all your firm’s resources, including all assets and liabilities. You can also include intellectual property, employee property, investments and cash. Getting input from a professional evaluator such as Wiley Financial will improve the process. Alternatively, you can seek help from a mentor. They will help you identify all assets and liabilities of your business. Assets come in two categories: tangible and intangible assets.

Tangible assets: These are your company’s holdings and material property. They can include cash on hand, inventory, real estate, and means of production.

Intangible assets: They are non-material assets that add value to your business. They are crucial when determining your SDE multiple. Some examples include trademarks, brands, reputations, and patents.

You’ll also need a good understanding of your liabilities. As mentioned, a liability is anything detracting from the company’s value. They can include business loans, accounts payable, notes payable, expenses, and unearned revenue.

If you are selling your business, you’ll need a business plan and model to help a prospective buyer understand how it generates revenue. A business plan will help you make accurate projections and investment decisions.

Besides, it helps the potential buyer understand how the business will grow in the future and increase profit margins. It should capture critical products and services you offer and enable the buyer to understand your company’s important context.

A robust business model demonstrates how your company makes money. For example, a subscription-based service or B2B consultation. The model will show the potential buyer how they’ll reach their target customers, generating income if they buy the business.

Understand your industryUnderstanding the industry is crucial for you and the potential buyer. Before buying the company, the buyer must be well-versed in the industry. And for you, the seller, it helps you keep abreast of industry trends, enabling you to do an accurate valuation. As mentioned, a company’s SDE multiple is dependent on the industry. So, research similar companies or comparables to help you understand the state of the industry. Knowing similar companies will help you assess your position and growth potential. You can then show prospective buyers why your company is better than your competitors.Arrive at a conclusion

Finally, it’s time to sell or seek funding. You’ll need to accept the market’s state for an accurate valuation. As they say that a company’s value is worth a market’s demand. If your industry has taken a dip, then the value of your business will be low.

As such, timing is crucial when evaluating your small business in Scottsdale. You can contact us if you need a professional business valuation in Scottsdale.

Approaches to valuing a small business

Generally, business valuation methods are nested within three approaches: income, asset, and market. They use different variables to evaluate a company. While you can use either, it is prudent to use at least two, compare the results, and use the one that seems more accurate. If this is daunting, consider contacting Wiley Financial.

Market approach

It is the most appealing approach for evaluating your small business in Scottsdale. All you need is to identify companies that are similar to yours. The main methods are:

Guideline transactionUnlike guideline transactions, this method uses data from publicly traded companies like yours. It enables you to select companies with similar business models, operations, and economic conditions.Asset approachThe asset approach is referred to as the cost or replacement cost approach. It determines the company’s value by detecting all liabilities from assets. The methods used are:Adjusted net asset methodIt is the primary method used in the asset approach. The evaluator in Scottsdale will use the difference between the fair value of a firm’s assets and liabilities. It sets a company’s floor value, which could be realized if its assets were sold and liabilities settled. It is, however, ideal for capital-intensive and holding companies.Capitalization of excess earnings method

The method uses income-based and asset-based approaches. It values a company’s tangible and intangible assets separately and uses the return on tangible assets rate and intangible assets rate. It is, however, used as the last option according to Revenue Ruling 68-609.

Income approachIt is one of the most popular approaches for evaluating small businesses. There are two primary methods.Capitalization of cash flow (CCF)This single-period valuation method converts a company’s cash flow into value by dividing it by the capitalization rate. You can use it when you expect long-term stable cash flow. The evaluator will use historical data to make future projections.Discounted cash flow (DCF)

DCF is a multiple-period method that uses future cash flow to determine the company’s value. It assumes the current company’s value is its future projected cash flow. An evaluator will use the company’s management projections to determine the value.

You can call us to book an appointment if you need a small business valuation in Scottsdale.

Business Valuation Needs in Texas

Business Valuation Services for a Broad Range of Businesses

A Complete Business Appraisal in Dallas

Business Appraisal: How to Appraise the Worth of a Company?

Business Valuation Services in Scottsdale:

Trusted Business Valuation Services in San Diego: