What’s Your Worth?
In today’s times, business owners, investors, attorneys, and bankers are particularly interested in determining the value of businesses. It is important for the analysis to know the purpose of the valuation before valuing the business. The purpose of the valuation will affect the assumptions and methodologies applied. Businesses need to be valued for many reasons, such as:
In simple terms, the value of an interest in a closely-held business is typically considered to be equal to the future benefits that will be received from the business, discounted to the present, at an appropriate discount rate. The foundation of any business valuation is the analysis of its historical financial statements. In the valuation process the analysis must rely upon their knowledge and experience to assess the risk factors related to the business being valued. This risk assessment is directly related to their development of an appropriate capitalization rate (used to convert anticipated economic benefits of a single period into value) and / or discount rate (used to convert a future monetary sum into present value).