If asked the value of a business, for most owners the answer is, “it is priceless”. But a number of situations require a more practical response, from estate planning to merger negotiations to marriage dissolution and more. If you find that you need this service, you don’t want any guesswork involved. While business valuation is not an exact science, there are some methods that yield a more fair and accurate assessment than others. There are four most commonly employed to determine the value:
Book Value
Book value is the amount of assets less liabilities. Dividing this number by the total shares outstanding yields the value per share of a corporation. This method does not take into account other factors. It does adjust the value of the assets to fair market value as opposed to depreciated value.
Book Value plus Value of Goodwill
Goodwill affects the average net earnings. This method measures that effect as a percentage and multiplies it by the number of years that goodwill should continue. That value is added to the book value. Obviously, this method is not cut and dry, so the knowledge the CPA has of your business based on experience and familiarity with the companies financial history is critical to an accurate appraisal.
Straight Capitalization
This method considers the net earnings for a period of time and divides it by a growth rate based on average rate of return similar businesses experience. In other words, it captures an estimate of future net earnings.
Book Value plus Capitalization of Excess Earnings
This method considers book value, goodwill and the capitalization of earnings, to determine the current value of the business.??Whatever the reasons you require a valuation of your business, you want a thorough analysis of all of the material information to ensure an accurate representation of the facts. We will work closely with you to create a well-documented valuation that can be readily defended. Contact us for a consultation to learn more about how we can help.
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