Knowing your business appraisal for your start-up company is a long process. It involves complex methods and procedures for appraising the current net worth of your business. But in order to know your business worth, you need a business appraiser. A start-up valuation needs a business appraiser, who specializes in evaluating tangible and intangible assets in order to determine the value of the business. And as an entrepreneur you need professional advice.
What is a Business Appraisal?
So, let’s start with this, you might be asking what is a business appraisal right? A business appraisal is a valuation of a business by an authorized person. To come up with an accurate valuation, a business appraiser will perform a thorough study of a business and give a clear picture of how the business is worth.
Many details are considered during this business evaluation, so they can get a certified business appraisal. Other than the analysis of the company details such as financials and assets, the certified business appraiser decides on which ‘valuation approach’ to use to check the worth of the company.
A valuation approach is the best way to determine the value of the business using one or more specific business valuation methods. Well, the business valuation falls within three broad approaches i.e., asset, income and market.
These techniques of evaluating businesses are why the certified business appraisal is highly sought after for business valuation in the market. They are much in demand for this service. Non- certified business valuation often only uses one method in their approach, they may result in mismatch. Well, all these approaches vary in detail, it’s up for debate as to which one is the best approach to evaluate your business worth which leads to challenges in deciding the correct value of the business.
Three types of Business Valuations
1. The Asset Based Approach
The asset-based approach totals up the value of assets and liabilities of the business to end up with the net asset value. The goal of this approach is to determine how much it would cost to set up an identical business. On paper, this approach is quite simple and easy to understand and do. However, it requires a certified professional to determine what to include and how to do it correctly to determine the start-up valuation.
2. The Market Based Approach
The market-based approach doesn’t just look at your business, it also looks at the market as a whole. To simplify this for you, this approach goes through all the businesses within the market to determine the value of your business. This approach provides information about your own business. The main goal is to see what your business is worth compared to other similar businesses in the same market. This also considers the overall market conditions to determine your start-up valuation. Also, this business valuation helps in determining an important factor which is how much a buyer is willing to pay, the buyer would definitely pay the fair market value for your business not the worth you have for your business.
3. The Income or Earnings Approach
This approach to business valuation looks at what the company is bringing to the plate. This approach factors in the present of the business, as well as the future of the business. But it does have a downside, a risk, this approach does carry with it an assumption. The goal of the valuator is to normalize the earnings when determining the value of the business and work from there.
There are many reasons, more specifically potential reasons your business needs a valuation done. There are certain times in a business’s life wherein a certified business appraisal is needed and an estimated business is not sufficient. So, some of the reasons which might help you to understand why a start-up valuation is needed for your business. Here are some instances when certified business appraisal services are needed:
- Initial Public Offering or IPO
- Partner Separations
- Potential Merger or Acquisition
- Business Damages
- Exit planning
- Buying or Selling a Business
- Employee Stock Ownership Transitions
- IRS matters
- Financial Reporting
- Dispute Resolutions
- Gifts & Trust Endowments
- Other Legal Matters
- Business owner who just want to know their business worth
So, if you really need a professional valuation of your service then we would suggest getting the help of a trained certified professional for your business valuation.