Business valuations as a planning tool
To create an effective exit strategy, it is vital to understand how businesses are valued. An accurate valuation allows the business owner to make a realistic estimate of the profit from a sale, and whether this is going to be sufficient to meet your future needs.
Our approach to business valuations is comprehensive and forward looking. An extensive analysis of your business looks at historical financial performance, a range of operational factors, an assessment of key risk matters as well as identifying opportunities to maximize future value.
The outcome of business valuations provided by Ascend Business Partners is a roadmap for making business improvements that will increase the value as well as estimate the value opportunity that could be achieved if the roadmap is successfully followed.
There is a common misconception that valuing a business is a simple financial calculation that is done with a great degree of certainty. This is not the case!
The valuation of a business is extremely complex because of the diversity of companies, industries and individual business performance that need to be considered. The true value of a business is what any potential buyer is willing to pay at any particular point in time, and this fluctuates depending on whether the settlement involves cash, shares or debt financing. Other factors such as timing of payment and the workout involved will affect the price.
There are three different approaches that are commonly used in business valuation:
The income approach
The asset-based approach
The market approach
The Income Approach generally looks at future income or cash and discounts it to today's value. An example is the “Discounted Cash Flow” method.
The Asset-based Approach bases its valuation on the assets of the business. For example “Net Asset Value.”
The Market Approach compares the business against other businesses in the same industry and takes into account size and location and other specific business factors. An example of this is the “Multiples of EBIT” approach.
Each technique has its advantages and drawbacks. These must be considered on a case by case basis and most valuation professionals will use a combination of approaches.
Business value enhancement
There are a number of drivers available for you to maximise the value of your business. Identifying and implementing these drivers will give your business the best chance to stand out from the crowd and be sold for a premium. The reduction of risks faced in the business is one of the best ways to create an immediate increase in value, as new owners will be prepared to invest at a premium in return for reliable ongoing business income.
We work with you to minimise risk by ensuring you have good financial records and reporting, an appropriate business structure, strong protection of your assets and mitigation for all the risks identified in our comprehensive risk review.
The premium value drivers that we implement to maximise business value include:
- reducing owner (and key staff) dependency
- creating a sustainable competitive advantage
- putting in place strong governance systems
- positioning your business for strategic acquisition
Arrange your business valuation and review
Ascend Business Partners can arrange to undertake a formal review of your business and provide:
- Assessment capabilities that assess financial and operational business factors
- Industry specific assessments, because one size does not fit all
- "What if" analysis to assess the potential increase in value for any planned business initiative