How are Orem, UT Businesses Valued?
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. This might seem complicated, but we can help. The accountants and valuators at Redwood Valuation have the expertise and knowledge necessary to make a business valuation a smooth and seamless process for you.
409A Valuation in Orem, UT plus IRC 409A Valuation, and Purchase Price Allocation
Call Redwood Valuation Partners for your next business valuation (206) 660-1295
Why Get Your Orem Business Valued?
If you want to know exactly how much your business may be worth if you sold it, you should seek a business valuation. 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. There are as many factors involved in the value of a business as there are businesses themselves. A business that is important for a particular city, such as Orem, 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. Getting your business valued requires knowledge of finance, tax law, venture capital and the audit process, as well as of your business. If you are interested in stock compensation, expenses or selling price, you will see a lot of benefits from a well-done business valuation. 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.
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 right approach for you depends on you, your business and what you hope to get out of a valuation.
Determining Value Based on Assets
There are several asset-based approaches possible for business valuation. 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. The difference between the assets and the liabilities of the company is the business’ value.
Of course, this approach is deceptively simple. This process gains complexity when the accountant has to decide which assets to include. A going concern asset-based approach or a liquidation asset-based approach will help you move forward with this appraisal.
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 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.
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 Orem. A method that uses comparison to determine value take into account other factors impacting the market as a whole.
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. Non-competition clauses and private information can hinder this approach, making it difficult or potentially even impossible to get the information necessary for this type of valuation.
Income- or Earning-Based Approach
An income- or earning-based approach is different from the other two in that it is concerned with future potential. By looking at the income of the business in the present day, it is possible to make a strong prediction about future value.
Obviously, this invites an element of risk in that the accountant or valuator is attempting to determine value based on a predication. 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. Additionally, capitalization factors may indicate abnormalities in the market itself that should be considered during a valuation.
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
Not all valuations are the same and not all valuations are confined strictly to businesses. Business valuations are just one type of valuation that is possible. Others focus on things such as patents and intellectual property.
What is a 409A Valuation?
A 409A valuation looks at stock as it relates to the value of your business. Stocks are frequently given to employees and contractors as part of their earnings from working. When compensation comes in the form of stocks like this it is considered a special type of deferred payment that has to be reported.
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. 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. 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.
An accountant such as the ones at Redwood can be a crucial ally in trying to sort through the 409A valuation process any time you find you need to do one. 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
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. Or you might be hoping to assess your tax liability by looking at your business’ value.
A practiced accountant can help navigate enterprise and equity valuations for businesses. As our clients have expanded, so has Redwood, increasing the size and expertise of our team. We have experienced accountants prepared for whatever your business’ specific valuation needs entail. 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.
How to Assess IP and Patents
Intellectual property and patents have separate valuation concerns. Most businesses do have some sort of intangible property that want to protect and valuate, though. 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.
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. 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)
Purchase price allocations, or ASC 805, may be necessary for your business. 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. Sometimes a business is sold in pieces and in such cases it’s important to find the value of those pieces before any transaction takes place.
What’s the Bottom Line?
At Redwood Valuation Partners, we are experts in business valuation. Whether your business is in Orem or somewhere else entirely, we can help you find the value of your business or intellectual property and stay in compliance with the tax code and other laws and 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. The intricacies can seem overwhelming. 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.
We understand the ins and outs of venture capital and auditing and take a teamwork-focused approach. Our valuation associates and analysts have worked in their field for years, becoming respected experts. Many of the people we work with come from high-pressure environments with tough deadlines. That’s why we won’t waste your time; we’ll handle the details while you keep running your business.
Whether you want a valuation for selling, taxes or any other reason, we can promise client focus and years of experience when working alongside you. Along with the obvious, our valuations include customized reports, audit defense and free consultations. 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. See both subjective and objective elements of your valuation with an in-depth look at your 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. 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 Orem, UT.