Almost every day there are new startups that require millions of investments. The problem is that a new businessman cannot clearly define his requests for financial investments, and the investor is not always able to assess the risk of investing in a young company and the profit he will receive. This article provides methods for estimating the value of a business.
Conceptual principles of business evaluation
Really, in the 21st century to start a business from scratch – is quite risky and laborious. It is difficult to make an idea and make it a profitable business. In some cases, it is easier and faster to buy an existing company. In part, there is a conflict of interest, which requires a method of assessing the value of the existing business.
The value of your business is an objective analytical indicator of the results of your company’s activities and the prospects of the planned directions of its development. This process involves the evaluation of specific activities, which are organized within a certain organizational and legal form, using virtual data room reviews. The main criterion is the profitability of the business, and hence the choice of an adequate methodological approach to its evaluation.
Business evaluation is carried out in order to:
- increasing the efficiency of current management of the enterprise;
- determining the value of securities in the case of purchase and sale of shares enterprises;
- enterprise restructuring;
- determination of the creditworthiness of the enterprise and the value of the collateral at lending;
- insurance, in the process of which there is a need to determine the value assets on the eve of losses;
- making sound management decisions;
- implementation of an investment project for business development.
What are the ways to evaluate the business?
To calculate the value of the finished organization at the time of sale, you must use effective pricing methods. Let’s consider the common methods to evaluate your business:
- Estimate the costs incurred
The cost method involves estimating the value of the company in terms of costs incurred. In essence, it shows the difference between the sum of assets and liabilities of the company.
- Valuation of the total value of assets
This method is acceptable for large industries and owners of expensive commercial real estate. The procedure capitalizes the company – that is, the total value of the company’s shares is estimated.
- Evaluation by industry counterparts
The main advantage of this method is that the evaluator focuses on factual data, rather than abstractions, and takes into account the objective situation in the sales market.
- Estimation of cash flow forecast
The assessment is made taking into account the long-term prospects of the company.
Business valuation software
In today’s business realities, no one doubts that to build a competitive successful profitable business you need to keep up with the times and use the latest information technology. They will allow you to make your business more efficient, to see it from different angles, in terms of different indicators, to manage several businesses simultaneously.
Today, there are a large number of companies that provide professional assistance in assessing business. Popular financial analysis tools comprise the following:
- Business ValueXpress