Demystifying Company Valuation Methods
A successful business sale begins with a solid understanding of the business’ worth. Because a valuation can make or break the sale of a business, it is important to apply accurate company valuation methods to the process.
While the actual value is the amount someone is willing to pay to buy a business, personal feelings about a company’s worth can get in the way. This is especially true when the business owner or owners have spent a great deal of personal time and energy building it.
As one of the most experienced accounting services firms in Washington, Curnow and Curnow, PLLC does not use a ‘one-size-fits-all’ approach to valuation. Instead, we employ company valuation methods that are right for the business based on the industry, size and circumstances of the sale.
It is important to understand that business valuations are useful for both buyers and sellers:
- If you are considering purchasing a business, the application of sound company valuation methods can give you an understanding of what the business is really worth.
- If you are considering selling a business, the use of good company valuation methods can help understand the kind of changes that will substantially improve the value of your company before you sell.
In the end, the true price has to reflect solid data based on market reality.
Call Curnow & Curnow, PLLC, Certified Public Accountants and Consultants today at (360) 676-6655 for your business valuation in Washington. We apply the latest and most effective best practices and company valuation methods to get clear answers about your business’ worth.
4 Common Company Valuation Methods
There are four commonly accepted company valuation methods that form the structure of a business valuation practice:
- Book value – the excess of assets over liabilities is divided by the number of shares outstanding and results in a value per share. It is a simple, bird’s-eye view of the business’ valuation.
- Book value plus goodwill – the excess earnings are multiplied by a growth rate based on the number of years goodwill is expected to last and added to the book value. This is a quick valuation that reflects the business’ standing within the community or industry.
- Straight capitalization – average net earnings for a certain number of years divided by growth to give an average rate of return for similar businesses. Much like comparing your home’s value to that of similar homes in your neighborhood, this gives another perspective on the business valuation.
- Book value plus capitalization – combining book value plus goodwill, the capitalization of earnings results in a combined valuation of the business.
Sellers are often surprised to find that company valuation methods often yield a lower-than-expected asking price for the business. At Curnow & Curnow, we offer a strategic company valuation strategy that can help business owners improve the value of their company prior to a sale and help buyers get a true picture of what they are buying before they get too deep into the upcoming transaction.
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