How to Find the Value of Your Providence, Rhode Island Business
Do you know how much your Providence 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 Providence business. 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.
409A Valuation, IRC 409A Valuation, Purchase Price Allocation in Providence, RI
Call Redwood Valuation Partners for your next business valuation (206) 660-1295
Top Reasons to Seek a Business Valuation
If you want to know exactly how much your business may be worth if you sold it, you should seek a business valuation. 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.
In addition to how much a business is worth, a valuation can show which parts of a business are valuable. Teasing out all the reasons a business is valuable is complicated, though. A local business that is important to the community in Providence may have a high value for that particular community, but not for a potential buyer. In contrast, a business that seems modest and small may actually hold a lot of value for a buyer. The particulars of a business will determine the outcome.
That’s why expertise is crucial in a business valuation. 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. 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. We at Redwood offer a free consultation for clients who need advice getting started with a business valuation.
Approaches 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. These methods apply to an array of businesses, whether they’re in Providence or elsewhere. Each business has its own particulars that will ultimately determine the approach that is the most appropriate for it.
Looking at 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. In practice, determining which assets and liabilities to include, and how, is a tricky process. A going concern asset-based approach or a liquidation asset-based approach will help you move forward with this appraisal.
One method is to look at assets with a going concern. 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 a real liquidation, the business would receive cash; this now becomes the business’s value in a valuation.
The type of asset-based approach you choose depends on your business. There are other approaches if focusing on assets is not right for your situation and goals. 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.
A market-based approach looks at the market as a whole and not solely at your business. The value of other businesses in Providence could provide insight on your own. The goal is to see what your business would be worth by comparing it to other similar businesses.
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. 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
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.
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.
Again, sole proprietorship and the exact style of business can impact the ultimate valuation here. 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
A valuation has benefits beyond just figuring out what a business is worth and there is therefore a lot of variety in types of valuations. A business valuation is not the only type of assessment that is possible. A different reason for a valuation could include something such as intellectual property.
What is a 409A Valuation?
A 409A valuation is conducted for the purpose of evaluating the stocks associated with the company. 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. What it comes down to is stock options. Businesses who need this form of valuation need it in order to determine the fair market value of their business. 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. 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. Figuring out your tax liability is another common reason for seeking out a business valuation.
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.
It takes an experienced team to understand the intricacies of business and finance, as well as IRS regulations. While you’re concerned with your business running smoothly, let experts tackle the ins and outs of a getting a valuation done.
Valuations for IP and Patents
Intellectual property and patents have separate valuation concerns. However, this type of valuation can impact a wide range of businesses. IP and patents are always under threat from competing trademarks and leaked trade secrets, as well as tax concerns. But you might also seek an IP and patent valuation in order to plan, secure a merger or acquisition, or during litigation.
Once you have a patent or intellectual property that has value, you need to make sure it is protected. Defining assets that are not necessarily tangible can be complex, though. Yet for many businesses, understanding those assets and their precise worth can add value and keep the company in compliance with all applicable laws.
Assessing Purchase Price Allocations for Business
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. This is particularly important for assessing purchase prices in 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?
At Redwood Valuation Partners, we are experts in business valuation. Whether you are comparing your business to others in Providence 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. 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.
One of our core values is teamwork, which we believe can help even in the complex world of venture capital and auditing. Our valuation associates and analysts have worked in their field for years, becoming respected experts. We know the pressures and stress of running a successful business. That’s why we won’t waste your time; we’ll handle the details while you keep running your business.
Our principles when working with clients include intense focus, long experience and grounded expertise, no matter the cause for the valuation. We go beyond the standard valuation to offer a free consultation, as well as audit defense and customized reports. 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. The comprehensive valuation report will include subjective and objective factors relevant to your particular business. And if an audit should come up, you can rest easy knowing our audit defense has your back at any time.
If you do want to find the value of your business or assets, having skilled assistance can be a boon. Don’t try to tackle this task alone when Redwood is ready and able to help you with the process. 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 Providence, RI.
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 Providence
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