For this blog, Mladen Djankovic. focuses on the facts, myths, and methods of business valuation, which is important for everyone looking to make a major decision regarding their company.
Myths and Facts of Business Valuation
Myth 1: Valuation is only pertinent if owners are looking to sell.
Fact 1: Reasons for having a business valuation vary. Sometimes, when a company applies for a loan, creditors ask for the value of the company. Also, when the company owner decides to take the business public, the value of the said business has to be disclosed.
Myth 2: Two same-sized companies sold in the same year will have the same value.
Fact 2: While there is a possibility that the values of these two companies may be very close to each other, Mladen Djankovic explains that there are other factors that make them different and these are what valuators focus on.
Myth 3: Business value can be determined by looking at the value of their competitors.
Fact 3: As previously mentioned, there are more than a couple of factors that determine the value of a business. In fact, many financial experts and business valuators operate under the impression that the values of many businesses keep changing.
Methods of Business Valuation
There are three main methods at which a business valuator can determine the value of a business. They each have their pros and cons, and in some cases, a combination of two may be used to calculate the value of a company.
The Asset Method
Mladen mentions that the asset method of business valuation focuses on the assets and liabilities of a business. Through careful calculation, business valuators find the value of the business. There are two important things to remember here. First, not every asset or liability is counted. And second, valuators come up with a number to represent the capital needed to set up another company that makes as much money.
The Market Method
To accomplish the market method, business valuators would have to do in-depth research on similar companies in the same industry. This means other companies that are of similar size and have likely the same products. It goes without saying that for this method, valuators look at more than one company. Sample companies need not necessarily be competitors. They can be companies found in other areas of the country.
The Income Approach
Finally, Mladen cites the income approach to business valuation, which looks at the time, money, and effort used to sustain the business to its current state. A more successful business will, of course, sell for a higher value, while a sinking ship will sell for less.
Mladen Djankovic is a skillful corporate strategist and marketer, with a vision and expertise in business performance, having driven notable enterprise growth in retail, luxury, and general consumer sectors.