Corporate Valuation
Posted in: Business

The Importance of Business Valuation to My Business

Given the market dynamics, businesses tend to be very unpredictable. While you may be exceptionally well at one point, there might be a phase in which you might even struggle to pay bills or any other payments. It is a common practice of business owners to seek the help of business valuators only in times of crisis. What most people are unaware of is that seeking their help in advance allows you to prepare better for any unforeseen circumstances. You need to understand the value of your business, your organization’s assets, and the economy. Below we discuss a few advantages of corporate valuation to any organization.

They Help Understand the True Profits Earned

The first and most crucial step is recasting. Many business owners legally suppress their profits, so they don’t pay significant taxes. Several companies have hired specialized accountants who help them do this, which is legal to do but will not help you understand your finances over time. Through recasting, companies can eliminate unwanted expenses such as perks to the owner, salaries to family members, bonuses, travel, etc. In doing so, companies are able to determine the exact profitability of the business and can be used in preparing any plans for the future. In fact, we’ve seen many business owners who are taken by surprise by the difference in amount through recasting. We recommend not skipping this step as it helps you understand the real value of your company and can accordingly sell to potential buyers.

The Importance of Business Valuation to My Business

Help Determine the Current Market Value

On an accounting level, most companies use a balance sheet to determine the assets and liabilities of a business. Given that these books show the original value minus the depreciation value, the actual replacement value is often found to be missing. For instance, a piece of machinery was bought at AED 30,000 and is depreciated to AED 7000; the balance sheet notes its price at AED 23,000, which isn’t the actual amount. In reality, this could cost substantially more to replace at current market prices. Through a business valuation, you can identify the real value of assets in the market.

Help Determine the Current Market Value

Helps Determine the True Value of Your Business

Lastly, through evaluation, company owners have a basic understanding of your company’s true value range and whether or not you should consider selling it. That being said, you need to understand that this is only an estimation based on our knowledge and experience and the guidance of the current market value.

At the end of the day, your business’s real value is what potential buyers are willing to pay for it. More often than not, it’s those intangible assets that help identify if they will buy your company over the baseline valuation. Given that every buyer is different, they will each be attracted to various features of your company.

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