How Do Valuation Companies Work?
A market valuation is the estimation of the value of a business, which represents the price anyone may pay for buying the business. A business that wishes to sell or be a part of a merger and acquisition process would prefer market valuation to understand its value. It is also needed for taxation, to get finance, and for allocation of shares between founders. Working with a reputed valuation company in Dubai can be very helpful in getting this key activity completed. The following explains how the valuation is done.
The first thing a valuation company would do is to understand the reason why the business wants to get a valuation done. This will help the company decide its approach. Once this is done, then it is time to gather the information needed for the valuation. An income statement, balance sheets, profit and loss statements, contracts, lease agreement, and other such information is used for the valuation.
There are different approaches to carrying out the business valuation. The asset approach, market approach, value to owner approach, and income approach are some of the common approaches used. Depending on the reason for getting the valuation done, the approach is decided and the process would be carried out.
A complete review of the assets owned by the business needs to be carried out. This plays a major role in the business valuation process. The asset list needs to be prepared, verified, and valued. The liquidation value of the various assets is used in most approaches to determine the asset value.
They Look at Competitors
Some businesses may need to be reviewed in comparison with the competition. Competitors of the same type and size need to be reviewed and the price at which they were sold can be a helpful input for the purpose of comparison. This is one of the approaches a business valuation company can use.
Calculate Future Earnings
Before the final valuation is done, the future earnings of the company have to be estimated. Projections need to be prepared for at least three years to understand the value of the company. These projections, when included in a valuation report, will be very helpful for potential buyers. On completion of all the activities, the valuation report is prepared.
The understanding of the working of valuation companies this guide has provided will help you select a good firm and work well with them to get your business valued.