The relevance of the business valuation process for the investors

Last Updated on: 22nd November 2023, 01:10 pm

Simply put, the business valuation is the way the company’s story, its brand, history, market, and product get translated to cents and dollars. The valuations get used by the creditors, investors, bankers, owners, and also the ATO (Australian Taxation Office). Also, the process can come up with different outcomes based on the purpose. To precisely calculate the value is a science and art.

For the owner who might be searching for financing, updating the financial plan, and considering the sale, here are a few reasons to opt-in for a business valuation.

Financing transactions, mergers, and acquisitions

The valuations are essential for the negotiations for the purchase, sale, and merger of a business. The valuations get used for benchmark buy-ins and the buy-outs for the shareholders and the partners. Also, the creditors and the lenders usually need the valuation as a factor for funding. The valuations also establish and update the employee stock ownership plans.

Succession and tax planning

The valuation decides the gift and estate tax liabilities and plays an essential role in the overall planning.


The valuations are usually central to the divorce proceedings, settlement for the legal damages, and resolves partnership disputes.

Strategic planning

The detailed analysis of the business valuation can enable the owners to understand better what generates the growth and profit.

Business valuation processes

The valuation process that gets used is based on the business condition and the valuation objective. For instance, the discounted cash-flow method is used for stable companies to get a profit.

Discounted cash flow

The discounted cash-flow process decides the current value of future earnings and profits. An increased discount rate leads to a reduced value, which reflects a higher risk that gets posed by the business. Also, the discount rates highlight the potential business risk for not catering to the profit expectations. Several variations of the discounted cash-flow process are used for the free cash flow, dividends, and multiple other measures than the earnings. Also, the method generated calculates the current value of the earnings for five years that gets adjusted for the expansion and future earnings that go beyond five years.

The book or the net asset value

The net asset value is also called the book value. The fair market value of the business assets is subtracted from the overall liabilities on the balance sheet. The lenders and the investors can consider the net asset value for the young companies with a restricted financial history. The net asset value is also helpful as the reduced limit for the valuation range because it simply evaluates the tangible asset of the business.

Liquidation value

The liquidation value gets described as the net asset value that gets discounted for the distressed sale. The lenders and the investors might consider the liquidation value for the potentially distressed and younger companies.

Today, several companies can help you with business valuation. You can check out the independent property valuers serving Hobart. It’s always best to choose a company that caters to your needs.

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