Why Do You Need a Business Valuation?
The most common reasons to get a business valuation are when the company owners are considering selling the business or merging with another company. The results can also be used as leverage when trying to attract investors or when you are ready to exit the business and pass ownership along to another partner or family member.
The business’s value may also be used in carrying out divorce proceedings, settling estates, and protecting partner interests in ownership buyouts.
In addition, business valuations are also an important tool for tax purposes. The IRS requires that businesses be based on fair market value. Tax-related events, such as selling stock or gifting shares to employees, will be taxed based on the business’s value.
| Market CapitalizationMarket capitalization is considered one of the simplest methods to value a business. You can calculate this value yourself by multiplying your company’s stock share price by its total number of shares outstanding. For example, if your stock is valued at $100 and you have one million shares outstanding, then you could value your company at $100,000,000 ($100 x 1,000,000). |
| Earnings MultiplierYour company’s profits are a stronger indicator of your company’s value compared to its sales revenue, which makes the earnings multiplier a reliable method. It works by adjusting the current price-to-earnings ratio to account for current interest rates. |
| Times RevenueThe Times Revenue method values your revenue streams generated over a specific period of time and adds a multiplier to it. This multiple is determined by your industry and the general economic environment. |
| Replacement ValueThis asset-based valuation method reviews the operational-related assets of a business and assigns a value based on what it would cost to replace them. |
Breakup Value MethodComplex companies with multiple business units or segments may benefit from a Breakup Value Method. This method examines what each individual segments may be worth if they were separated from the parent company. | |
Discounted Cash Flow (DCF)The Discounted Cash Flow method looks to the future to predict cash flow value. The goal of a DCF analysis is to predict how much an investment is worth today based on predictions of how much revenue the business will generate in the future. |
Our Business Valuation Process
At WestPac, we use the latest technology and a seven-step process to determine the value of your business, including a thorough examination of the following:
1. Operational Track Record
It’s important to understand what your business has done and how it has performed in the past. However, business worth is largely based on what the business will be able to do in the future.
2. Book Value
Book value refers to the shareholders’ equity in the business. This is calculated by subtracting the company’s total liabilities from its total assets.
3. Liquidation Value
Liquidation value is the amount the company would receive if it were to liquidate all of its assets and pay off all liabilities.
Why WestPac Wealth Partners?
Our teams of financial advisors and wealth managers assist our clients with managing finances in every aspect of their lives. We help each client shape their vision for the future and take the right steps today that will help them grow and protect their wealth over time and achieve long-term financial goals. To do this, we combine a methodical approach with a customized strategy that caters to each client’s unique needs to encourage confident decisions and generate financial stability.
To date, we have administered more than $1.8 billion in assets for more than 31,000 clients, including individuals, couples, and business owners.
Get in Touch
Contact our team below to start a conversation. We offer business valuations as part of our client planning and review process.