If you own a business you may find yourself at some point wanting to know its value.
It’s important to know the value of your business for various reasons. Such as retirement purposes, estate tax planning, creating a financial statement or perhaps you’re considering selling a portion or all of the business.
There are various ways a business can be valued.
A business valuation can come in many forms.
Commercial Real Estate Appraisal: The Evaluation Process Steps
If you need to have your business valued there are a few things that you will need to do before starting the process.
First, you will need to figure out the actual value of your company’s tangible assets. This can be determined by referring to your most recent financial statement. Your CPA will use this information as a starting point.
What Is Your Premise For Valuation?
There are two basic premises for valuation. The first premise is that your business and its entire assets, including commercial real estate will be liquidated.
This, of course, means that your company will no longer exist. The second premise is that you will continue to operate.
Normalizing Operating Income
In this part of the valuation process, your CPA will need to normalize your net operating income so that it is more in line with how a regular company should be running.
Things like fringe benefits or personal expenses should be taken out of the net operating income. You should treat it as if a new owner is going to take over the business, which would likely eliminate many of these expenses from the budget.
When normalizing your operating income your CPA will have to make some assumptions. These assumptions will help to begin the valuation process.
Determining Value and Compiling The Report
Once your CPA has gathered all the necessary information and has made assumptions, a value can be determined.
If there is no actual sale of your business this can only be a guide to value.
While it may be an assumption on the part of your CPA, it is one of the best tools you can use to determine the value of your company.
Once the the value of your company has been found, your CPA will draw up a report that can be used to show proof of value.
If you have interest in having a business valuation performed you can contact Real Estate Matrix at (877) 453-0221 or click here to fill out our form and we will get back in touch with you as soon as we can.