How to evaluate a business when selling it

Business valuation is a procedure whose purpose is to calculate the total value of a business or organization or its share in them. However, it may be necessary for various reasons. In any case, each leader is faced with the problems of its implementation. Not knowing the value of the business, it is quite difficult to make any informed decisions on the sale of property rights. In simpler terms, the value of a business is a reflection of its performance.

Instruction manual

1

Business evaluation should be carried out in several stages. First, you need to collect all the information about the object of assessment, as well as conduct an analysis of the reliability of all collected data.

2

Next, you need to analyze and study the market in which the company operates. After this, you should consider similar property complexes that are capable of generating income in the market.

3

Then, it is necessary to carry out calculations by selecting methods and approaches for evaluating the business that are suitable for the goal. Moreover, there are three main approaches used to evaluate the enterprise: profitable, costly and comparative.

4

The income approach involves assessing the value of a business by calculating the present value of expected profits. Thus, the income of the enterprise is considered as a fundamental factor determining the value of the business. That is, the greater the income, the higher the cost. In this case, the income (expected) is calculated based on the property complex of the business, general economic factors, prospects for the development of the company, industry dependencies, time to receive benefits, risks associated with running this business and making profit, past business results, cost of money depending on time.

5

The method of capitalization of income, as well as discounting flows are more common and relevant for modern Russian conditions through the income approach. The capitalization method is based on measuring the efficiency of using assets to generate income from them. This method can be used if the projected income is stable over time and positive, and the rate of income is easily predictable.

6

The method of discounted cash flows is based on their forecasts, which are subsequently discounted in connection with time stretching, according to the discount rate itself, which allows you to determine the present value of future income.

7

A comparative approach involves comparing the evaluated enterprise with similar businesses that are sold on the open market under other equal conditions. To apply this approach, the sources of information are open stock markets, an acquisitions market, as well as previous transactions with assets in the enterprise in question. The advantage of this approach is that the real value will reflect the results of all the activities of the company, but the transaction price is the situation in this market.

8

The cost approach considers the valuation of the company in terms of costs incurred. Most often, the carrying value of assets is not a determination of real market value. Therefore, the task of evaluating a business is to re-evaluate them very carefully. After this, from the obtained indicator, it is necessary to subtract the current value of liabilities, thereby obtaining the estimated value of the organization’s equity.

9

After the method is selected and the analysis is carried out, it is necessary to coordinate the results.

10

It is necessary to draw up a report on the evaluation of the enterprise, which explains the results obtained, and also explains the entire process of the business valuation.