How to Find the Value of Your Irving, Illinois Business
Do you know how much your Irving business is worth? Finding that number can be a difficult process involving a whole slew of factors, from where you’re located to what “value” means to you. The value of a business means different things to different people, but there are some core principles of business valuation that can help you get the right valuation done for your Irving business. If this sounds technical, don’t worry. 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.
409A Valuation, IRC 409A Valuation, Purchase Price Allocation in Irving, IL
Call Redwood Valuation Partners for your next business valuation (206) 660-1295
Top Reasons to Seek a Business Valuation
A business valuation could be conducted for several reasons, but often it is done because a business’s owner wants to know how much the company is worth. Don’t try to go into business negotiations about selling a business before you’ve gotten a valuation from a skilled accountant who’s an expert in the field.
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 business that is important for a particular city, such as Irving, may have high value there, but not elsewhere. In contrast, a business that seems modest and small may actually hold a lot of value for a buyer. It comes down to the details.
Therefore, getting experienced accountants to do a valuation is critical. In addition to understanding your business, an accountant doing a valuation should know the ins and outs of finance, venture capital, tax law and other fields. The advantages of doing a business valuation correctly include understanding your selling price and stock compensation. But the reasons and advantages of a valuation are different for every circumstance. We at Redwood offer a free consultation for clients who need advice getting started with a business valuation.
Approaches to Business Valuation
An accounting doing a business valuation will likely take one of three main approaches to assessing the value of a business. There could be other approaches to business valuation, but the three described here encompass the most common methods. These methods apply to an array of businesses, whether they’re in Irving or elsewhere. The right approach for you depends on you, your business and what you hope to get out of a valuation.
Looking at Assets
While it may sound obvious, there are actually a few approaches to looking at a business’s assets The overall goal is to add together all the investments in the 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 exercise can reveal a lot of information about a business, including its liabilities and assets. Then, the valuator can simply subtract the liabilities from the assets to figure out the worth of the business.
It sounds straightforward, but there are hidden complexities. The difficulty lies in the details, where figuring out the worth of a business and sorting through assets and liabilities becomes more complicated. Typically, one of two methods will be chosen for proceeding: either a going concern asset-based approach or a liquidation asset-based approach.
A going concern asset-based approach is a little more straightforward. The accountant looks at the company’s net balance sheet to find the value of its assets and then deducts the value of its 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 type of asset-based approach you choose depends on your business. Asset-based approaches are not appropriate for all business. For example, a sole proprietorship in which assets are in the name of the business’ owner are not good candidates for this approach. A corporation, in which all assets are owned by the company as a whole, is a much better candidate for an asset-based approach.
Determining Value Based on the Market
Sometimes it is important to take in the whole picture, meaning the entire market, and not just your one business. For example, you could compare your business to others located in Irving. 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. An accountant using this approach will try to determine the fair market value of your business and what a buyer is likely to pay for it in the current climate.
It would be great if the sort of information necessary for this approach was easy to obtain, but it is not always the case that competing businesses will divulge the necessary figures. Private and protected information such as non-competition clauses can prove a barrier to obtaining some of the information needed to make a valuation.
Making a Valuation Based on Income or Earnings
The difference between an income or earnings focused approach and other approaches is that this means of valuation is concerned with the future. By looking at the income of the business in the present day, it is possible to make a strong prediction about future value.
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. Some of this uncertainty is offset by the ability to use concrete data to calculate this valuation. The accountant doing the valuation can even “normalize” figures to remove unusual spikes or dips that could make the assessment less precise. The market itself can produce spikes and dips that require an additional capitalization factor to be figured into the assessment.
There are, as with other methods, additional considerations here, such as the type of business you run. 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. Others focus on things such as patents and intellectual property.
This type of valuation is concerned with the stocks connected to your business. It is common for employees in many fields to receive stocks as compensation. 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 may seem overwhelming. It simply means those stocks have to be accounted for. A benefit of this form of business valuation is that it can determine a company’s 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.
Often, you will know you need this type of valuation because it will be legally required of your business. Even if you have gotten a 409A valuation in the past for your business, the law could require that you get another one each year or every time a new round of funding closes.
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.
Business Valuations/Looking at Business Valuations
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. You may be hoping to see how much you could make by selling your company. Others desire a business valuation when researching things such as tax liability.
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. Perhaps you want to ensure compliance with tax reporting or, conversely, find the fair market value of your business.
IRS regulations, business needs and finance are complex fields that call for knowledge and specialization. A valuation is an added complexity on top of keeping your business running, so allow our accountants to handle valuations for you.
IP and Patent Valuations
Patents and intellectual property also require their own valuations. However, this type of valuation can impact a wide range of businesses. Taxes are complex when it comes to IP and patents, but it is also important to make sure trade secrets and trademarks can be protected. But you might also seek an IP and patent valuation in order to plan, secure a merger or acquisition, or during litigation.
Make sure your patent or intellectual property is protected by understanding what it’s worth on the market. These assets can be difficult to appraise as they are often intangible and difficult to define. But the value of IP and patents cannot be understated, especially in recent times when so much of a business’s value comes from these assets in particular.
Purchase Price Allocations (ASC 805)
You may be required to do a purchase price allocation. During a purchase or acquisition, businesses seek to find their fair market value, including their intangible assets and liabilities, to bring to the transaction. 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?
Here at Redwood Valuation Partners you will find the expertise you need for your valuation. Ensure that your Irving business meets the requirements of the tax code and applicable regulations while finding the value of the assets, liabilities and intellectual property you hold.
Often, you will need to know the fair market value of your business. Business valuations help in situations where you want to sell, sort out your taxes or simply determine the value of your various assets. You also could seek a business valuation in order to protect a patent. Assets and liabilities are complicated. A helping hand through the process of business valuation can make the process easier. Whether it’s finance, tax issues or business, our accountants are prepared to navigate the technicalities with you.
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 know the pressures and stress of running a successful business. We let you get to the important work of running your business while we take care of the intricacies of business valuation.
Our principles when working with clients include intense focus, long experience and grounded expertise, no matter the cause for the valuation. 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. And our customized reports will include all the detail you need to make business decisions based on your valuation. Get a deeper look at your business that includes objective factors as well as subjective ones during the assessment. 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. Find out how to get started with a consultation.
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 Irving, IL.
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 Irving
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