Assessing Business Value in Watersmeet
Have you ever wondered how much your business is actually worth? Assessing the value of your Watersmeet business can be more complicated than just working out the value of its assets. 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 Watersmeet business. This might seem complicated, but we can help. 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 Watersmeet, MI
Call Redwood Valuation Partners for your next business valuation (206) 660-1295
Top Reasons to Seek a Business Valuation
There are a myriad of reasons to get your business valued, but perhaps the most obvious one is in order to see how much it will sell for. 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 shows not just overall worth, but also where that value originates from. The value of any one business could come from entirely different sources than a different business. A business that is important for a particular city, such as Watersmeet, 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. The particulars of a business will determine the outcome.
Therefore, getting experienced accountants to do a valuation is critical. 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. 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. These three approaches are not the only possible ways of looking at a business’s value, however. These approaches to business valuation are applicable whether your business is located in Watersmeet or not. The right approach for you depends on you, your business and what you hope to get out of a valuation.
Looking at Assets
There are several asset-based approaches possible for business valuation. 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 exercise can reveal a lot of information about a business, including its liabilities and assets. The next step involves balancing the assets and liabilities in order to calculate how much value the business holds.
Don’t be fooled by how simple this approach seems at first glance. 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. 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. 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. A corporation, in which all assets are owned by the company as a whole, is a much better candidate for an asset-based approach.
Looking at 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 Watersmeet could provide insight on your own. The goal is to see what your business would be worth by comparing it to other similar businesses.
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.
This approach encounters difficulties in that often other businesses are not eager to share their worth with competitors. Private and protected information such as non-competition clauses can prove a barrier to obtaining some of the information needed to make a 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.
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. Sometimes, these predictions are divided by capitalization factors that fluctuate based on the market.
There are, as with other methods, additional considerations here, such as the type of business you run. 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
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. There are other value assessments that serve difficult purposes. Others focus on things such as patents and intellectual property.
A 409A valuation is conducted for the purpose of evaluating the stocks associated with the company. It is common for employees in many fields to receive stocks as compensation. 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. It simply means those stocks have to be accounted for. 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. 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. 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.
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. 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.
Equity and enterprise valuations are best handled by a talented accountant. 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. Whether you want to find your fair market value or do tax or financial reporting on your business, we are prepared to help you through the process.
IRS regulations, business needs and finance are complex fields that call for knowledge and specialization. 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
Intellectual property and patents have separate valuation concerns. Patent and IP valuations come from many different industries in the business world. 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. Other reasons for IP and patent valuations include business planning, mergers and acquisitions and litigation support.
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. Yet for many businesses, understanding those assets and their precise worth can add value and keep the company in compliance with all applicable laws.
Purchase Price Allocations (ASC 805)
You may be required to do a purchase price allocation. 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.
A purchase price allocation ultimately comes down to determining what various parts of a purchased business are worth, including assets and liabilities. 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 your business is in Watersmeet 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.
Knowing the fair market value of your business can help your future. Whether you are looking to assess your value for the sake of selling or have yearly tax considerations, a business valuation will help. You also could seek a business valuation in order to protect a patent. Assets and liabilities are complicated. That’s where experienced accountants come in to help inform and guide you. 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. At Redwood, we have built a team grounded in years of expertise and business knowledge. 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.
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. 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. Finally, you will have nothing to fear from audits, as our audit defense is prepared to protect you should the occasion arise.
The bottom line is that a business valuation, for any reason, is best approached with help. 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 Watersmeet, MI.