Business Valuation
- get to know the value of your business
Business valuation – your roadmap to better business decisions. Valuating a business should start with defining what business value and a business are. A business is an organized set of intangible and tangible assets intended for conducting economic activity in accordance with Article 55^1 of the Civil Code. We distinguish three main approaches to business valuation based on which business valuation is most commonly performed.
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Company Valuation Methods
Comapny Valuation - Income approach
Economic value of the company is established using the income approach, namely the discounted cash flow method (DCF). It is applied to companies that generate income and positive cash flows, with an established market position allowing for the assumption of continued generation of such income and cash flows. This method focuses on future cash flows discounted to their present value, thus allowing for the consideration of future benefits that will be generated by the company.
Comapny Valuation - Comparative Method
The comparative method determines the fair market value of the assessed entity by comparing it to comparable companies whose stocks are listed on stock exchanges or are subject to buying and selling in the non-public market. Analyzing valuation multiples such as price-to-earnings ratio, price-to-revenue ratio, etc., allows for the determination of investors’ expectations and perceptions, consequently establishing the market value of the assessed business.
Comapny Valuation - Asset-Based Method
Valuation technique using the asset-based method particularly applies to companies whose operations rely heavily on tangible assets such as real estate, equipment, or machinery. Asset-based methods assume the company’s valuation based on the estimation of the value of its asset components deriving from its book value. The fundamental assumption underlying this group of methods is that the value of the business equals the net value of its assets.
When calculate the business value?
Business valuation approaches - multiple ways to find out how much a business is worth
Selling a company is a unique transaction that few encounter on a daily basis. Most people have little or no experience in this area. Before considering the sale of a company, we should learn about the sales process, and above all, we must answer the question of what the valuation of the business is. Knowing the estimated price for a company enables us to make an informed decision.
Valuing a business in various business situations, such as restructuring, aims to determine the current value of the company's assets and its potential for future earnings. This is crucial in restructuring as it allows for assessing the feasibility of planned changes and restructuring actions. Business valuation in restructuring may involve financial analysis, market assessment, competitive analysis, market trend analysis, and strategic evaluation. All these elements help evaluate the company's value and determine whether restructuring will be profitable and effective. It's worth noting that business valuation for restructuring purposes may differ from traditional valuation as it considers specific factors related to restructuring needs, such as restructuring costs, changes in capital structure, potential synergies, or risks associated with the restructuring process. As a result, business valuation in the context of restructuring aims to provide information and decision support to take appropriate actions and ensure an effective business reorganization.
Valuing a business for reporting purposes involves determining the value of the business in accordance with accounting and reporting requirements and standards. This is crucial for financial purposes such as preparing financial statements, reporting results, assessing financial condition and shareholders' interests, and complying with legal and regulatory requirements. In the case of business valuation for reporting purposes, commonly accepted valuation methods are typically applied, such as the asset-based method, income approach, and comparative method. Each of these methods has its advantages and limitations, so often a combination of approaches is used, taking into account different factors and perspectives. Business valuation for reporting purposes also requires considering other factors such as risk analysis, assessment of company development prospects, market trend analysis, and the business environment in which the company operates. The results of business valuation for reporting purposes are crucial for informing stakeholders such as investors, creditors, regulatory bodies, and shareholders about the value and financial condition of the company. They also assist in making business decisions, assessing management effectiveness, and evaluating potential risks associated with investments in the company.
Investment profitability analysis and business valuation are related but distinct concepts. Investment profitability analysis involves assessing the profitability and feasibility of specific investment projects. This entails decisions regarding capital allocation to achieve returns from investments. Profitability analysis includes evaluating cash flows generated by the project, estimating investment costs, and analyzing other risk and uncertainty factors. The aim of profitability analysis is to assess whether an investment generates sufficient returns to be profitable for the business.
On the other hand, business valuation is the process of determining the value of the entire company. Valuation takes into account various factors such as net asset value, potential future earnings, investment risk, as well as market and industry context. The objective of business valuation is to establish its market value or potential value in the case of sale, merger, acquisition, or other business transactions. Valuation can be applied to both mature companies and startups, but depending on the specific case different methods might be applicable.
However, it's important to note that from an investor's perspective, business valuation may be just one project within the entire capital group.
In case of valuation for liquidation purposes is the process of determining the value of a business when liquidation or dissolution is necessary. This is typically the final step taken in the event of business failure or when there is no possibility of continuing operations. In the case of business liquidation, the valuation aims to determine the value of the company's assets, which will be liquidated and converted into cash, and then distributed among creditors and shareholders. Valuation takes into account various asset components such as real estate, equipment, inventory, receivables, and liabilities.
The valuation process in that case may be more complex and specific because it also considers costs associated with the liquidation itself, such as legal, administrative, and logistical costs. Additionally, in the case of business liquidation, there may be urgency and limited time to dispose of assets, which can affect their value. It's worth noting that in the event of business liquidation, the value obtained from the valuation may differ from the market value of the business in normal circumstances. Since liquidation often occurs hastily and under special conditions, this can affect the value of the business assets.
Therefore, business valuation for liquidation purposes aims to determine the value of the company's assets in the event of its termination and is crucial for ensuring a fair financial resolution for all stakeholders involved. Often, the liquidation value determines the minimum value of the business.
In this case appraisal is the process of assess the worth of the business to establish the appropriate price for issuing new shares or stakes in order to raise additional capital from investors. This is important for companies looking to bolster their own capital and financial resources to fund development, expansion, investments, or debt reduction.
In case of increase in share capital the valuation is based on assessing the value of the entire company or its portion that will be subject to the issuance of new shares or stakes. Valuation considers various factors such as net asset value, growth potential, and profitability of the business, as well as market, competitive, and macroeconomic factors.
The purpose of valuing a business for increasing share capital is to determine the value of the new issuance of shares/stakes that will incentivize investors to contribute additional financial resources. It's worth noting that the valuation of a business for increasing share capital can be a complex process requiring professional expertise and analysis.
A thorough and credible valuation is essential for both the business and potential investors to make informed investment decisions and establish the appropriate value of the newly issued shares or stakes.
In case of valuation process for merger or acquisition purposes appraisal is the process of assess the worth of a company to establish a fair and adequate price for the transaction involving the merging of two firms or the acquisition of one company by another. Valuation is a crucial element of this process, enabling the assessment of the business's value and negotiations between the parties involved in the transaction.
During the valuation of a business for mergers or acquisitions, various factors and methods are considered, which may vary depending on the specific circumstances and industry. Valuation takes into account different factors such as growth prospects, business risks, synergies, and growth potential, which influence the value of the business.
Valuing a business for mergers or acquisitions is extremely important for both parties involved in the transaction. It provides the opportunity to assess the value, establish a fair price, and negotiate the terms of the transaction. Valuation considers various factors, and it's crucial to be conducted by experts with relevant experience and industry knowledge, with a particular emphasis on industry licenses that confirm expertise.
Appraisal for private investor testing is the process of assess the worth of a company to conduct simulations or analyses aimed at evaluating the investment attractiveness for a private investor. Such testing may be conducted by an individual investor or a private investment firm considering the possibility of investing in the company.
During the valuation for private investor testing, both financial and strategic aspects of the business are assessed. The valuation takes into account historical financial data as well as forecasts of future performance to evaluate the growth potential and profitability of the company. Additionally, strategic factors such as the company's market position, industry competitiveness, potential synergies, and investment risks may also be considered.
Assessing these factors is crucial for a private investor, who may have their own strategic goals and expectations regarding investment returns. It's important to note that valuation for private investor testing is not a binding offer or an official valuation of the company. Rather, it is a tool helpful in making investment decisions and assessing the potential profit for the private investor.
Business valuation and succession planning are closely intertwined because valuation plays a crucial role in the process of planning and transitioning a business from one generation to the next. Succession planning refers to the strategic process of preparing and organizing the transfer of power and responsibility from the current owner of the business to the future owner or management team.
In the context of succession planning, appraisal aims to determine the company's value, which is essential for establishing a fair price or stake for the transferring and future owner or successor. Business appraisal plays a crucial role in determining the terms of the transaction, such as the selling price, shares, financial terms, or payment schedule.
Succession planning combined with appraisal allows the owner to secure the future of their business, ensure a smooth transition of power and business continuity, and provide a proper return on investment.
Appraisal for the purpose of an independent opinion for the board of directors, supervisory board, or owners is the process of assessing the value of a company conducted by an independent expert to provide objective information and opinion regarding the company's worth. This type of valuation is often required for significant strategic decisions such as mergers, acquisitions, restructuring, or company divisions.
The primary objective of valuation for independent opinion is to provide an impartial, reliable, and objective estimation of the company's value. An independent expert, typically an external advisor or a specialized valuation firm, conducts financial and strategic analysis of the company, considering both historical data and forecasts of future performance.
Appraisal for tax optimization purposes refers to the process of assess the worth of a business in order to identify tax strategies that can minimize the tax burdens of the business. In the context of contribution in kind refers to the process of assess the worth of a business that is to be contributed as an asset to a company in exchange for shares or stocks. In the case of contribution in kind, the business is assessed to ascertain the value of the contribution it will make to the company. Valuation is crucial as it helps determine the appropriate number of shares or stocks to be allocated to the owner of the business in exchange for transferring its assets to the company. The valuation of the business for contribution in kind must be fair and objective to ensure equitable terms for all parties involved. It is important to note that the valuation of the business for contribution in kind should comply with applicable laws and regulations governing such transactions.
Appraisal for tax optimization purposes refers to the process of assess the worth of a business in order to identify tax strategies that can minimize the tax burdens of the business. During the valuation of the business in the context of tax optimization, it is important to consider various factors such as ownership structure, type of business activity, location, income, costs, assets, and liabilities. The goal is to find optimal tax solutions that allow the business to minimize tax burdens and increase tax efficiency. Business valuation may incorporate various methods and tax optimization strategies. Here are a few examples: Ownership structure, Transfer pricing, Utilization of tax incentives, Cost and revenue planning. However, it is important to note that tax optimization should be conducted in accordance with applicable tax laws and ethical principles. The business should work with an experienced tax advisor or a firm specializing in tax optimization to ensure that tax strategies comply with regulations and do not violate applicable tax laws.
Business appraisal for legal proceedings refers to the process of determining the value of a company in the context of resolving legal disputes or court cases. In such cases, business appraisal may be used to establish the value of the company's assets, estimate damages, resolve disputes regarding commercial contracts, shares, stocks, intellectual property, or other aspects related to commercial or corporate law. Valuing a business for legal proceedings must be conducted using objective, reliable, and credible methods and data.
Appraisal for legal proceedings can be a crucial element in resolving disputes, enabling the court to make an objective assessment of the value of the business or other asset being disputed. The opinion of the valuing expert can serve as important evidence and influence the court's final judgment. However, it is worth noting that appraisal in the context of legal proceedings can be a complex process. Therefore, it is recommended to consult with a lawyer specializing in commercial or corporate law who can provide appropriate advice and support during the valuation process for legal proceedings.
Business valuation - step by step
Free consultation with the person conducting the valuation to present the subject of the valuation.
Signing a cooperation agreement and a non-disclosure agreement (NDA).
Sending a list of documents necessary for the valuation.
Contacting the company to further specify the information contained in the submitted documents.
Conducting the valuation process.
Providing a draft version of the valuation report.
Making corrections to the report based on any comments from the company.
Presenting the final report along with discussing the received result.
Free consultation with the person conducting the valuation to present the subject of the valuation.
Presentation of a price offer for the service.
Signing a cooperation agreement and a non-disclosure agreement (NDA).
Contacting the company to further specify the information contained in the submitted documents.
Conducting the valuation process.
Providing a draft version of the valuation report.
Presenting the final report along with discussing the received result.
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If you want to learn more and want the financial services you need to be prepared by investment advisors and to be compliant with accepted standards and the law, it is worth using our services.
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How much does a business valuation cost?
Business appraisal is a service, and as it is known, service prices vary even when the subject of the service is very similar. Before making a decision on the valuation of a business, we want to know the cost of preparing the valuation, what the process of valuing the company looks like, whether the valuation of businesses will prove helpful in achieving our goals, and how long it really takes to prepare a professional valuation.
How long does the process of business valuation take?
As a rule, the process of business appraisal takes 2-4 weeks from the receipt of the necessary documents. In the case of a complex valuation, this process may be slightly extended. We are able to provide a preliminary value range within 1-2 weeks of receiving the documents.
Schedule a consultation – company valuation
If you want to learn more and want the financial services you need to be prepared by investment advisors and to be compliant with accepted standards and the law, it is worth using our services.