Every business should follow a steady growth pattern. The growth of the business will help it to expand in more markets and will also provide greater avenues and scope for development. To understand the complete scope of growth, the management should first evaluate the company so that it can prepare a plan which will assist the company.
What is Business Valuation?
Business Valuation can be defined as a process that helps in determining the value of the company or business. Business Valuation is a very important step in making a plan for growth in the future. A Business Valuation can also help during the time of Mergers and Acquisitions or during the liquidation of the business.
Methods to Determine the Value of a Business
There are various methods by which one can determine the value of the business; these are:
1.Income Approach
The income approach to decide the value of a company is very common. In this method, the value of a business is understood by the total income generated by the company at a specified time.
2.Market Approach
The market approach of determining the value of a business is based upon the present market value of all the company according to the shares or the cost of a similar business.
3.Asset Approach
According to the Asset Approach, the value of the business is determined by the current market price of all the assets and inventories owned by the company. It is to be noted that the asset approach of valuation will also include all the liabilities and the outstanding liabilities of the company.
Benefits of Business Valuation
A company is benefitted in a number of ways by the process of Business Valuation. Some of the benefits of Business Valuation are:
1. Find the Exact Value of the Business
In order to understand what the management is actually dealing with, the management should first conduct a business valuation to get a clear picture of all the assets of the company and to know everything about the inventory.
2.Measure the Growth of the Company
Business valuation provides a baseline from which any growth in the company can be measured. This baseline will help in understanding what is the present financial condition of the company and if the company is having a trend of growth or decline. The Business valuation acts as a yardstick or benchmark against which all growth is measured.
3.Make the process of Mergers and Acquisitions easier
In the case of a Merger or an Acquisition, the management should have complete knowledge of the financial hath of the business. Also, the exact value of the business can be found out only after conducting a business valuation.
4.Prepare a Plan for the Future
Once the management is aware of all the assets of the company and the inventory it needs to handle, it can prepare a plan for the future, which will assist in the growth and development of the company. This plan will also include any future plan for expansion and any other Research and Development activity of the business.
5.Attracting New Investments
All the necessary information is unearthed during the process of business valuation. Once the financial health of the company is known, it is easier for an investor to understand if he should invest in the company or not.
6.To Acquire More Funding or Loans
A business valuation will help increase the credibility of the business, which will, in turn, help to acquire more Funding or Loan in the future.
These are some of the benefits which can be availed by a business by conducting Business Valuation. To know more about Business Valuation, you can talk to the experts at JAXA Chartered Accountants. we will be happy to assist you and provide you with every necessary information.
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