Business valuations might seem straightforward; however, as the people who walk into Dragons’ Den and ask for £100,000 for 10 per cent of their business – thereby valuing their start-up at £1 million – clearly show, often these figures can be plucked from the farthest reaches of our imagination.
In reality business valuations are, or at least ought to be, rooted in cold hard fact, in tangible evidence that proves the exact worth of a business at a given moment rather than an estimate of how good an individual thinks their product, service or general idea is worth. That is why forensic accounting is so intrinsically intertwined with the task of valuing a business – this skill takes into account a wide range of figures to calculate the price tag that should be attached to a company.
We’ve looked in the past at why an individual might need a business valuation conducted, but what exactly is involved in the process?
At Frenkels Forensics we understand how the task of valuing a business is unique in every situation. The things that must be taken into consideration will change depending on the size and sector of the business, not to mention additional complexities including partnerships, limited companies, small family businesses and large companies with operations both in the UK and overseas.
In the most straightforward sense, business valuations involve cash flow analysis, forecasting future expected revenues and costs to arrive at an expected net profit and therefore a terminal value. Things like overheads, order books, clients, assets, stock and staff, as well as income and profits, must all be factored into establishing a business’ worth.
The obvious financial complexity illustrates the importance of calling in expert help when setting about this task; this can be the difference between a fair and realistic valuation and one that is widely exaggerated or largely unfounded – the latter could result in a serious breakdown in shareholder disputes, divorce negotiations, contractual disputes, partnership disputes as well as negligence cases, all of which rely on an accurate business valuation.
For expert help with a business valuation contact Frenkels Forensics for an independent appraisal.
Alternatively, if you’re looking for advice in any aspect of forensic accountancy, then do get in touch via Twitter, Google+, LinkedIn or by visiting our website www.frenkels.com
By Vitek Frenkel – find me via Google+.