How to Find the Value of Your Lu Verne, Iowa Business
Have you ever wondered how much your business is actually 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 might change depending on who you ask, but luckily there are certain consistent principles applied to any business valuation that is performed. If this sounds technical, don’t worry. At Redwood Valuation, we built our foundation on years of experience that we leverage to assist our customers seeking business valuations.
409A Valuation, IRC 409A Valuation, Purchase Price Allocation in Lu Verne, IA
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. 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 shows not just overall worth, but also where that value originates from. Teasing out all the reasons a business is valuable is complicated, though. A business that is important for a particular city, such as Lu Verne, may have high value there, but not elsewhere. 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.
It’s imperative, then, that your business valuation is handled by professionals. 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. Ultimately, the reason for a business valuation depends on your particular circumstances. If you need help determining if a business valuation is right for your circumstances, get a free consultation from Redwood.
Different Ways of Approaching Business Valuation
When assessing the value of any business, there are three broad approaches that are considered standard. While there may be other approaches, these three encompass the main methods of assessing a business’ value. These methods apply to an array of businesses, whether they’re in Lu Verne 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. An accountant going forward with an asset-based mindset is theoretically attempting to imagine what it would cost to set up another, identical business. Assets and liabilities are much easier to see through this theoretical new business. The difference between the assets and the liabilities of the company is the business’ value.
Don’t be fooled by how simple this approach seems at first glance. 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. A liquidation approach to determining worth is concerned with paying off liabilities before figuring out the value of a business. After liquidation, the accountant can see clearly the value of the business.
The type of asset-based approach you choose depends on your business. It is possible that a different method is more suitable for your particular business. There are certainly some businesses, such as those that are in a sole proprietorship, that would be well-advised to take a different approach. By contrast, corporations spread out the ownership of assets throughout the company and could benefit more greatly from a valuation based on assets.
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. The value of other businesses in Lu Verne could provide insight on your own. A method that uses comparison to determine value take into account other factors impacting the market as a whole.
The advantage to this approach is that it looks more comprehensively at the overall business climate for your particular field. In this approach, it is also very important to consider what a buyer in the market would currently pay for your business and what the fair market value would be.
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.
Looking at Income or Earnings
This approach to business valuation looks at potential and future value in order to draw conclusions. However, this method starts in the present, looking at the earnings of the business today to try to predict its future earnings.
Of course, assessing value this way comes along with the risk of assumptions and predictions that invite uncertainty. 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. 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. If a business is strongly linked with its owner and that owner sells or leaves the business, an evaluation based on past performance could lose its validity depending on how customers react to the change.
Types of Valuations
The types of valuations possible go beyond those meant strictly for businesses trying to sell. Business valuations are just one type of valuation that is possible. A different reason for a valuation could include something such as intellectual property.
Getting a 409A Valuation
A 409A valuation is conducted for the purpose of evaluating the stocks associated with the company. Many businesses offer stock to their employees and contractors. Stocks given to employees are regarded by the IRS as deferred income ” income given to someone in one year but actually paid 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. Any employee offered stock as part of their compensation must be able to buy equity in your company at or above the fair market value determined through this valuation. If your company issues other forms of deferred compensation, including things like bonus plans, then this type of valuation may be required by law.
Often, you will know you need this type of valuation because it will be legally required of your business. 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.
While you can do a 409A valuation yourself, a skilled accountant can guide you through the process with expertise to make sure you don’t hit any bumps along the way. A Redwood valuator will know the ins and outs of this type of valuation, as well as the best approach for you and your business as you undergo this process.
Business Valuations/Looking at Business Valuations
A business valuation is a general term and can be suitable for a myriad of situations, including during negotiations, while planning a business or during entity conversations. Perhaps you are interested in finding the likely selling price of your business on the market. Others desire a business valuation when researching things such as tax liability.
A practiced accountant can help navigate enterprise and equity valuations for businesses. At Redwood, we’ve seen our clients’ needs expand as our own business has expanded. We years of experience and a comprehensive team, we are prepared to take on a host of business valuations needs. Perhaps you want to ensure compliance with tax reporting or, conversely, find the fair market value of your business.
The intimate details of IRS regulations, business and finance can be a complex maze to try to sort through. While you’re concerned with your business running smoothly, let experts tackle the ins and outs of a getting a valuation done.
How to Assess IP and Patents
Patents and intellectual property also require their own valuations. Patent and IP valuations come from many different industries in the business world. Some of our clients have concerns about trademarks and trade secrets, while others want to make sure they stay in compliance with taxes. 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. Defining assets that are not necessarily tangible can be complex, though. Despite the difficulty, IP and patents are extremely valuable assets that every business should seek to protect as well as they can.
What is a Purchase Price Allocation?
Another requirement businesses encounter is ASC 805. During a purchase or acquisition, businesses seek to find their fair market value, including their intangible assets and liabilities, to bring to the transaction. Purchase price is the crucial outcome of such an evaluation of a business.
A purchase price allocation ultimately comes down to determining what various parts of a purchased business are worth, including assets and liabilities. It is not always the case that a business is sold as one whole entity; it may be sold in smaller pieces.
Getting a Business Valuation Done Right
At Redwood Valuation Partners, we are experts in business valuation. Whether you are comparing your business to others in Lu Verne or looking elsewhere, a business valuation can show you the fair market value of your business and assets and keep you in compliance with any tax code regulations.
Fair market value is a crucial piece of information you should have about 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. Don’t get overwhelmed by the details. A helping hand through the process of business valuation can make the process easier. We know how to assist you with a business valuation whether it is for tax issues, value assessment or any other reason.
One of our core values is teamwork, which we believe can help even in the complex world of venture capital and auditing. Our team consists of experts who have worked in their specialties for years. Many of the people we work with come from high-pressure environments with tough deadlines. We value your time; let us minimize the burden of complicated valuation details while you focus on what you know best ” 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 the obvious, our valuations include customized reports, audit defense and free consultations. 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. Finally, you will have nothing to fear from audits, as our audit defense is prepared to protect you should the occasion arise.
If you do want to find the value of your business or assets, having skilled assistance can be a boon. Redwood has the experts on hand to make your business valuation a painless process with lots of benefits. 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 Lu Verne, IA.