Many experts say the valuation field needs to be more cohesive with consistent reports and calculations. It is not just about finding the right information but also about doing the math. Getting agreement on the facts and the correct interpretation of them is about following a process to determine the business’ value.
The valuation process is often lengthy and requires a strict path.
- Data collection.
- Data analysis.
- Financial projections
- Assessment of the market and industry.
- Business strategy.
- Calculation of value
The complex process was created because valuation is not only about calculation but also about discovery. Understanding the client’s business drivers and the numbers that will determine the business value is important. This could differ depending on whether the client is a buyer or a vendor.
The business valuer often has to interpret more than three years old data. It is an iterative process where the client and the business valuer work together to determine how certain details affect the business’s value.
The buyer or business owner often already has a range of values in mind. What they need is to cross-check their understanding of business value. A business valuation is a quick and easy way to help.
What is a quick business valuation?
An immediate business valuation with detailed analysis can take 24-48 hours. Although a quick calculation is often completed within 1-2 hours, the discovery process may take longer.
Three steps are required to value a business quickly:
- Collect past and current financial information.
- Question profitability, growth, business processes, and competitive advantage.
- A systemized approach for calculation and reporting.
After completing the calculations, the business valuer must consider the results from multiple perspectives. This is where time is important. A good valuation should take at least 1-2 days to achieve the best result.
What limits can a fast-business valuation be?
A quick business valuation will not be helpful if the valuation is to be used in commercial or legal disputes. These cases require that the valuation be supported by solid evidence and reason. When preparing a defensible report, it is important to consider the interpretation of financial statements and business and industry issues.
Other limitations include the following:
- There need to be clear and credible financial reports.
- A company that has experienced dramatic changes in its profit performance, such as switching from large losses to profits or vice-versa.
- A business’s value depends on intangible elements such as key owners, intellectual property, and goodwill.
- Inability to meet with business owners to discuss business.
How can you get a quick business valuation?
A quick valuation is the simplest way to confirm that the vendor or buyer has made the right decision. Negotiation can then be short. This gives clients the power to set the limits of negotiation and reduces the time it takes to conclude.
It will also reveal potential opportunities for the company to increase its value. This will allow the buyer to understand the strengths and probable opportunities of the vendor and help them feel confident in defending the business’s value.
It can also confirm boundaries when settling disputes between business partners. Disputations are not always about a difference of 5-10%. They are more likely to differ by multiple orders of magnitude. A business valuation in under 2 days can resolve this issue quickly. Many disputes can be determined by having shareholders go through the valuation process. They come to an understanding of the value and differences in arriving at a valuation figure.
How about investing in a company?
This is an important area of a quick business valuation. It can tell you if an investment in an established business will increase its value. A valuation will show you how much the company is worth, which areas of improvement, and the new deal.
It’s crazy to invest $1M into a business, but the value of that company only goes up by $750,000. An instant valuation can identify aspects of a project that could lead to a decrease or an increase in value.
Fast business valuations reduce the risk of making bad decisions, whether selling your business, buying a company, or investing in one. This gives you the confidence to take swift and decisive action.