The Basics of Business Valuation
Posted: January 29, 2015 | Press
Few law schools include business valuation methodologies in their curricula, so it is important to work with Orange County corporate attorneys who are well-versed in such techniques when buying or selling a business.
Frequently Used Business Valuation Approaches
Because there are so many variations in terms of the purposes of a valuation and the nature of a business, a variety of valuation approaches may be used.
This approach is hardly similar to market comparisons that are used in the real estate world. There’s no common denominator like price per square foot by which to compare businesses, so a more detailed approach is required. A number of adjustments must be made to account for variations in quality of goods and services, equity and other factors.
Typically used in conjunction with other approaches, this reflects the value of a business as an operating entity.
Replacement Value Approach
Commonly used in settling insurance claims, this approach involves determining what it would cost to replace business processes and assets.
With this approach, the value is assessed after removing the present debt structure from consideration.
Future Net Operating Income
This approach is largely speculative and seeks to determine the present value of a company’s reasonable future net operating income.
Historical Net Operating Income
In this case, a company’s actual net income from the past few years is used to arrive at a value figure.
When a company is purchased, its debt must be paid. This approach includes the value of the debt in the final price.
Additional approaches, including the liquidation approach, the reconstructed capital structure approach and the tax value approach, which assesses the value of taxable real and personal property, may also be used. Experienced Orange County corporate attorneys can assist clients with determining the best valuation approach.
Accurate Business Valuations Require Experienced Orange County Corporate Lawyers
A lot is at stake when buying or selling a business. Accurate business valuations are crucial, and Orange County corporate attorneys can help. Call Brian Hogan at 877-302-7759 now.