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Dubai, one of the fastest developing commercial hubs, is a home to millions of international expats that constitute a large number of entrepreneurs, investors, employees. The destination serves as a home to world business entities and is continuously expanding it in all possible ways. The UAE government has been adapting all the possible measures to establish it as the world’s business hub. In the process of doing so, it has set certain mandates for business entities. One such mandate is implementing business valuation services that need to be followed by an organization regardless of its structure, size and the nature of the business. Be it a start-up or an established organization, it has become a need. This article stresses the fact that why the valuation services play such a crucial role.
What Is Business Valuation?
If you ever plan to buy a new business or sell an existing one, the first and foremost thing you need to do is to find the value of the business. It is also applicable to know the worth of a business currently running. Imagine you have got your start-up, then after a certain period say, a year or two, it becomes a mandate to identify the startup valuation. This will not only present you the business value but will also help you to grow it in the present by bridging the loopholes gap so that it holds a massive value in the future.
Now, when it comes to the business valuation process, certain techniques are applied through which the worth of a business can be determined and being a business owner, one should know. Do read below…
Company Valuation Methods
A business valuation method holds a strong grip in the valuation process. It is an essential task that needs to be followed in all the organizations. There are different ways in which the valuation can take place. Some of the frequently used measures are as follows:
1. Asset-Based Approach
This method considers the total investment made in the business. It helps you realize the total worth of the assets present excluding the liabilities part.
2. Market Approach
This approach works only if similar business entities exist as similar to yours. This method compares the value of your business to other business which has been sold recently.
3. Income Based/Discounted Cash Flow Approach
This is the most widely accepted approach. It aims at revealing the worth of a business in its future. It measures the future cash flows to find the present worth.
To understand the methods available more clearly, go through the following table.
Business Valuation Methodologies
|
Asset-Based Methods |
Income-Based Methods |
Market-Based Methods |
Other Methods |
|
Book Value Method |
Capitalization of Earning Method |
Comparable Company Market Multiples Method |
Contingent Claim Valuation |
|
Liquidation Method |
Discounted Cash Free Flow Method |
Comparable Transaction Multiples Method |
Price of Recent Investment Method |
|
Replacement Value Method |
- |
Market Value Method (For Quoted Securities) |
Rule of Thumb |
As we have seen the different types of valuation methods, it is believed that a combination of these methods would help a business to realize it’s worth making the results more convenient. Till now, we have seen what business valuation and its methods are. Now, let’s know regarding its importance.
Importance of Business Valuation
Business valuation helps company stakeholders to:
- Gain a better knowledge of company assets
- Have a knowledge regarding company resale value
- Obtain a true company value
- Get a better hold on bad debt accounting
- Resolve shareholder disputes
- Define an easy litigation and business restructuring process
- Be informed during mergers and acquisitions
- Get a better view and understanding of cash flow and forecasting
- Have easy access to more investors
In order to proceed towards organization success, measuring the business parameters becomes an integral part. While you are proceeding and following the already set footsteps, measuring and comparing with the earlier ones can assure you whether the progress path is being followed or not. Not only with old records, but a comparison with the market makes your business much stronger from all possible sides and gives an assurance that your business can still prevail in the changing business climate. To proceed ahead, you can rely on JAXA. We are one of the best valuation companies in Dubai. Our experts can guide you from the very scratch while making the valuation process hassle-free. Contact us today to initiate the process – we’d be glad to assist.
