Importance of Business Valuation

Business Valuation is an exercise, that will give a unbiased credible assessment of the value of a business. Business valuation is a critical component to your business succession planning. Generally, business owners tend to consider business valuation only when they decide to put their business up for sale; however it is important for every business to have an up to date valuation. Valuation is a very versatile tool that can be used as a business performance indicator; it can demonstrate the direction the business is heading. It is also important for other reasons –

Business Succession Planning: Savvy business owners often arrange transfer shares to a partner or heir through a buy-sell agreement. But before the owner buyout price , the value of the business must be determined.

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The IRS needs to know the Value of the Business: At the death of business owner, the value of the business will be used to help estate taxes and tax basis for any future sale.

There are many circumstances in modern business why valuation is very important. These include financial reporting, legal disputes, fund raising, intellectual property and when it comes to determining relative performance of a business. Valuing a business is a complex exercise that takes several attributes-purpose of the valuation, date of the valuation, selection of a method, cash flow of the business, economic circumstances, ownership consideration and the experience of the business valuer.

Valuation for three factors (selling to a third party, creating a succession plan for a family member, or preparing for untimely departure or death of the partner) will depend on different factors to determine the fair market value of the business.

Business may need valuation for any of the following reasons:

  • When buying or selling a business
  • Financial Reporting purpose
  • When setting up legal disputes
  • Assessing Intellectual property (IP)
  • When Raising Funds
  • When assessing overall performance of the business

Valuation is also very useful barometer to access the life cycle of the position of the industry. There are many reasons why valuation is important. It is an important input to many of the decision that boards, management, regulators and investors make every day in modern business. Estimated value of the business is useful data for the owner in putting together a succession, estate or personal retirement plan.

The best way to determine the value of your business is to find a qualified appraiser. Determining the value of the business is not something that you should attempt at your own. You can contact Proxcel Advisory Services LLP for the best business valuation services in India.