Developing a business from scratch takes a lot of work. It would be frustrating if after growing your business to where it is now you end up selling at a loss. You want to get good value for all the sweat you put into it. One way of doing that is by getting an accurate business valuation. While this is a service that can be rendered by a business broker 92122 trusts, you need to brush up on a few things. In this post, we will be looking at the business valuation concepts you should be familiar with before bringing in a valuation expert in University City, San Diego.
Going Concern Value
This is a common business valuation concept used for businesses that expect to continue operating and growing indefinitely. The concept is used in asset-based business valuations. The phrase Going Concern Value means the business’ value is expressed in terms of the expected future growth of the company. Your business broker 92122 will be able to explain this concept at length if they use it.
Liquidation Value
This is also used in asset-based business valuation. Unlike Going Concern Value, the Liquidation value applies to companies that are going out of business. The concept is for businesses that wish to liquidate their assets. The important point to remember is that the liquidation value of the assets is usually lower than the fair market value.
EBITDA
EBITDA is an abbreviation for ‘Earnings Before Interest, Taxes, Depreciation and Amortization’. This is a concept needed in an earnings-based business valuation. In a Multiple of Earnings formula, the revenue of a business is expressed as EBITDA. The value of the business is then calculated by assigning a multiplier to its current revenue. The multiplier used will vary depending on the current market trends, specific industry as well as the economic climate.
Cash Flow
The Future and Discounted Cash Flows are the primary valuation concepts that are used in an income-based business valuation. Cash flow takes into account capital expenditures, taxes, and working capital changes. It is considered the true determinant of a business value. The Future Cash Flow is based on the assumption that historical results of a company’s earnings are useful in predicting the future results of the business. Discounted Cash Flow means a discount is applied to Future Cash Flow Value so as to account for the risk on how to get a loan with bad credit.
Transferability of Future Cash Flow
Transferability of Future Cash Flow focuses on how transferrable the company’s Future Cash Flow is from the current owner to a buyer. If cash flow is influenced and controlled by the owner, the transferability of the future cash flow will be low. This is because the success of the business is tied to the current owner. Building a strong management team is recommended so that a business can run smoothly even when the current owner is absent.