Assessing Business Value in Chesterfield
Do you know how much your Chesterfield business is worth? There are a number of intricate details that you have to evaluate in order to find your business’ fair market value. The value of a business might change depending on who you ask, but luckily there are certain consistent principles applied to any business valuation that is performed. This might seem complicated, but we can help. Our experts at Redwood Valuation Partners have years of experience in business valuation and are eager to help you through the process from start to finish.
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Why Do Businesses Get Valuations?
If you want to know exactly how much your business may be worth if you sold it, you should seek a business valuation. Anyone hoping to sell a business will be better positioned during negotiations if they have gotten a thorough business valuation before any talks began.
A business valuation can also help show you where your business’ value comes from. Teasing out all the reasons a business is valuable is complicated, though. A local business that is important to the community in Chesterfield may have a high value for that particular community, but not for a potential buyer. By the same token, hidden value may lurk in a business that doesn’t seem as impressive at first glance. It comes down to the details.
Therefore, getting experienced accountants to do a valuation is critical. Getting your business valued requires knowledge of finance, tax law, venture capital and the audit process, as well as of your business. The advantages of doing a business valuation correctly include understanding your selling price and stock compensation. Ultimately, the reason for a business valuation depends on your particular circumstances. We at Redwood offer a free consultation for clients who need advice getting started with a business valuation.
What Approaches Are There to Business Valuation?
When assessing the value of any business, there are three broad approaches that are considered standard. There could be other approaches to business valuation, but the three described here encompass the most common methods. No matter where your business is located, these methods can help you find your business’s value. The best approach for your business depends on your reason for getting a valuation and your long-term goals for your company.
Determining Value Based on Assets
While it may sound obvious, there are actually a few approaches to looking at a business’s assets The aim of an asset-based approach is to total the investments of a business. The business valuator tries to determine with this method what it would cost to set up anther business exactly like the one that already exists. This reveals what that original business is worth (what kinds of assets it has) and what liabilities it has. The next step involves balancing the assets and liabilities in order to calculate how much value the business holds.
It sounds straightforward, but there are hidden complexities. This process gains complexity when the accountant has to decide which assets to include. Additionally, there are two different ways of going about this process: a going concern asset-based approach and a liquidation asset-based approach.
A going concern asset-based approach is a little more straightforward. Value here is determined based on the value of the assets the accountant finds in the business contrasted with the cost of any liabilities. In the other approach, a liquidation asset-based approach, the accountant first imagines that all the assets and liabilities were paid off, as though the business was liquidated. The net cash received from such a liquidation is the business’ value.
The specifics of your business may reveal whether this sort of approach is right for you. There are other approaches if focusing on assets is not right for your situation and goals. For example, a sole proprietorship in which assets are in the name of the business’ owner are not good candidates for this approach. By contrast, corporations spread out the ownership of assets throughout the company and could benefit more greatly from a valuation based on assets.
Looking at the Market
Sometimes it is important to take in the whole picture, meaning the entire market, and not just your one business. This includes looking at other businesses in Chesterfield. The goal is to see what your business would be worth by comparing it to other similar businesses.
This approach has the benefit of viewing overall market conditions rather than having a more narrow focus. Some important considerations for this approach include the current fair market value of similar businesses and what price buyers are paying right now for businesses like yours.
Unfortunately, it is not always easy to get competitors with your business to reveal the sort of information needed for a market-based valuation. Some of the difficulty with a market focused approach arises when you encounter non-competition clauses and other information a business has decided to make private.
Making a Valuation Based on Income or Earnings
This approach to business valuation looks at potential and future value in order to draw conclusions. An income-based approach tries to use current income and earnings to predict how much a business will be worth in the future.
It is not an exact science to predict the future of a business and therefore an earning focused approach can invite an element of risk. There is, however, reliable data to back up the value assessment made through this method. Often, a valuator will “normalize” current earnings, removing abnormal costs and windfalls, to try to get a reliable set of figures to work with. Sometimes, these predictions are divided by capitalization factors that fluctuate based on the market.
How a business is run and who owns it is an important consideration here, as with other approaches to valuation. How customers view a business is a factor that is not captured in income figures or market values but that can impact a business’s value.
Different Kinds of Business Valuations
The types of valuations possible go beyond those meant strictly for businesses trying to sell. A business valuation is not the only type of assessment that is possible. Someone with a patent, for example, may also seek a valuation of their property.
What is a 409A Valuation?
This type of valuation is concerned with the stocks connected to your business. Stocks are frequently given to employees and contractors as part of their earnings from working. Such businesses need a 409A valuation because that stock is considered a form of income offered in one year but paid out in a different year.
This sounds complicated. Ultimately, it is a matter of reporting stock earnings. For one thing, this type of valuation can help a business find its fair market value. Fair market value is especially important here because employees with stock need to be able to sell it at or above that mark. In addition to stock, a 409A valuation is required if your company issues bonus plans, salary deferral arrangements and other agreements involving deferred compensation for employees.
It is important to know whether or not your business is legally required to get this form of valuation. Additional 409A valuations could be required at the end of a new round of funding or once a year, even if you have gotten this type of valuation in the past already.
It is advised that you don’t try to do a 409A valuation yourself, even though you can, and instead let an accountant deal with unforeseen difficulties that you aren’t prepared to handle. Experience and expertise are key benefits that only an accountant can offer if you have to work through a 409A valuation.
Valuations for Businesses
Some of the reasons for a business valuation include things such as entity discussions and business negotiations, but they are also useful while planning a business or estate. Maybe you are wondering how much your business can sell for right now. Or you might be hoping to assess your tax liability by looking at your business’ value.
Whatever the reason, a skilled valuator can help you get equity and enterprise valuations. At Redwood, we’ve seen our clients’ needs expand as our own business has expanded. Regardless of your specific reasons for seeking out a business valuation, we can work with you to reach your goals. Business valuation could include tax or financial reporting, assessment of fair market value or for purchase price allocations.
It takes an experienced team to understand the intricacies of business and finance, as well as IRS regulations. A valuation is an added complexity on top of keeping your business running, so allow our accountants to handle valuations for you.
How to Assess IP and Patents
Patents and intellectual property also require their own valuations. Most businesses do have some sort of intangible property that want to protect and valuate, though. IP and patents are always under threat from competing trademarks and leaked trade secrets, as well as tax concerns. Litigation, mergers, acquisitions and business planning provide additional cause for an IP and patent valuation.
Make sure your patent or intellectual property is protected by understanding what it’s worth on the market. It is sometimes complicated to find the value of these intangible assets. Despite the difficulty, IP and patents are extremely valuable assets that every business should seek to protect as well as they can.
Purchase Price Allocations (ASC 805)
Another requirement businesses encounter is ASC 805. In the course of negotiations for a business acquisition, things such as liabilities, assets and fair market value need to be assessed objectively. Of course, the overall goal is to figure out the purchase price for an acquisition.
This type of business valuation looks at all the different parts of a business to determine its value. In a transaction, a lot of smaller pieces of a company can be traded and purchased and it’s important to understand the value of all of these.
What’s the Bottom Line?
Come to Redwood Valuation Partners when the time comes for your business valuation. Ensure that your Chesterfield business meets the requirements of the tax code and applicable regulations while finding the value of the assets, liabilities and intellectual property you hold.
Knowing the fair market value of your business can help your future. This may be because you intend to sell your company or because you want to stay in compliance with 409A. Intellectual property can be assessed and protected through a business valuation. Don’t get overwhelmed by the details. Get experts on your side who know how to cut through the complicated legal language to get you the information you need. Our team has worked for years in business, finance and tax issues, allowing us to meet the needs of a wide range of businesses.
While venture capital and auditing can be complicated, we believe teamwork and expertise can help manage the process of a valuation. Our team consists of experts who have worked in their specialties for years. We understand that many of our clients come from high-pressure startups and growth-focused companies with tight deadlines. That’s why we won’t waste your time; we’ll handle the details while you keep running your business.
Whatever your reason for getting a business valuation, we can offer client focus, experience and expertise that can make the process as easy as possible for you. Along with audit defense, we will give you a free consultation before beginning your valuation, which comes with customized report. We will even help you get started if you aren’t sure. The customized reports we include with our valuations give you insight into the details of all of your businesses assets. The comprehensive valuation report will include subjective and objective factors relevant to your particular business. Plus, you can take one less burden off your plate with audit defense that guarantees audit defense at any time without high additional costs.
In the end, if you need a business valuation, you will likely need help with that valuation. Get Redwood’s experienced team to assist you as you work through a business valuation for any reason. A free consultation may be the perfect starting point.
Our clients have direct access to Redwood’s managing partners and directors. You know your business better than anyone, and the valuation process includes subjective assessments that require your input. We guide you through this process, save your time, and allow you to focus on what matters – growing your business. Get a quality company appraisal in Chesterfield, SC.
The Redwood team has performed many IRC 409A Valuation Seattle engagements, and we offer a wide variety of business appraisals to Seattle. Other services include ASC 805 valuation (purchase price allocations), IP valuation, patent valuation, impairment valuation, carried interest valuation, portfolio valuations, IRC 382 valuations, and many other types of stock valuations and business valuations.
With over 50 years of combined valuation experience, we provide top-tier expertise and client service at a reasonable price. Our experience as CFOs and Controllers of venture firms and startups separates us from our competitors who lack the boots-on-the-ground experience that our clients have, which we also share.
If you plan to issue stock options in the next twelve months or have any questions about potential valuations, give us a call for a free consultation and we will give you candid advice about whether a valuation may be needed and how we might help. Our goal is to help our clients achieve their desired goals with minimal burden.
409A Valuation Chesterfield
Redwood Valuation Partners was formed behind an idea of service positioning us as one of the most well respected companies in the industry. Our expert knowledge of finance, tax, venture capital and the audit process helps us understand the difficulties of start-ups. We speak your language! Give us a call and learn how we can help. For information on Business Valuations follow us on Twitter Like us on Facebook and find us on Google+ too! (206) 660-1295