Assessing Business Value in Madison
Do you know how much your Madison 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 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 in Madison, NH plus IRC 409A Valuation, and Purchase Price Allocation
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. If you are considering selling your business, it’s critical to get a valuation first so that you can go into negotiations with potential buyers armed with knowledge and data.
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 Madison, 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.
That’s why expertise is crucial in a business valuation. 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. But the reasons and advantages of a valuation are different for every circumstance. 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
An accounting doing a business valuation will likely take one of three main approaches to assessing the value of a business. These three approaches are not the only possible ways of looking at a business’s value, however. 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
Finding the value of a business based on its assets isn’t as straightforward as it sounds. In this approach, a business’s investments are added up to determine value. 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. 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. This process gains complexity when the accountant has to decide which assets to include. 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. 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 a liquidiation focused approach to valuation, it is important to imagine the business is liquidated before determining its value. After liquidation, the accountant can see clearly the value of the business.
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. 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
It can be useful in a valuation to look at the bigger picture and see what a business is worth compared to the rest of the market. The value of other businesses in Madison could provide insight on your own. Viewing your business side-by-side with other, similar ventures can provide crucial information for figuring out the value of a business.
An approach that is concerned with the market as a whole takes a much more detailed view of factors outside of just the details of your business’s finances. 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
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.
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. However, they can use hard data to back up this prediction. 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.
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.
Different Kinds of Business Valuations
The types of valuations possible go beyond those meant strictly for businesses trying to sell. There are other value assessments that serve difficult purposes. Others focus on things such as patents and intellectual property.
This type of valuation is concerned with the stocks connected to your business. Many businesses offer stock to their employees and contractors. 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. What it comes down to is stock options. 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. Other deferred compensation that requires a 409A valuation includes salary deferral arrangements and bonus plans the company issues.
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. They can also help you choose the best approach to this valuation for your circumstances and business needs.
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. Figuring out your tax liability is another common reason for seeking out a business valuation.
A practiced accountant can help navigate enterprise and equity valuations for businesses. Redwood’s expert team has grown to keep pace with our increasing client needs. We years of experience and a comprehensive team, we are prepared to take on a host of business valuations needs. Business valuation could include tax or financial reporting, assessment of fair market value or for purchase price allocations.
The intimate details of IRS regulations, business and finance can be a complex maze to try to sort through. You know your business, but evaluating your business against all applicable laws, regulations and financial considerations takes an expert in the field of business valuation.
Valuations for IP and Patents
Finding the value of intellectual property and patents is a specialized field. 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. Litigation, mergers, acquisitions and business planning provide additional cause for an IP and patent valuation.
Don’t neglect to protect your valuable intellectual property or patent by getting a valuation of it. 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.
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. Purchase price is the crucial outcome of such an evaluation of a business.
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.
Getting a Business Valuation Done Right
Come to Redwood Valuation Partners when the time comes for your business valuation. Whether you are comparing your business to others in Madison 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. That’s where experienced accountants come in to help inform and guide you. Whether it’s finance, tax issues or business, our accountants are prepared to navigate the technicalities with you.
We understand the ins and outs of venture capital and auditing and take a teamwork-focused approach. 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. 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. We go beyond the standard valuation to offer a free consultation, as well as audit defense and customized reports. We can assist you from the very beginning if you don’t know where to start. The customized reports we include with our valuations give you insight into the details of all of your businesses assets. Get a deeper look at your business that includes objective factors as well as subjective ones during the assessment. And if an audit should come up, you can rest easy knowing our audit defense has your back at any time.
In the end, if you need a business valuation, you will likely need help with that valuation. Don’t try to tackle this task alone when Redwood is ready and able to help you with the process. Begin your process with a free 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 Madison, NH.
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 Madison
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