Business Valuations – Quick Tips to Evaluation
Business Valuations are essential to understanding the overall value of real business property, assets, and working capital. Business Valuations help maintain industry status and are a good method of business identification among Fortune 500 companies. There are several commonly asked questions regarding business valuations. These include:
. Total value of annual accounts receivable
. Value of assets and depreciation
. Value of real property, business investments, and stocks
Determine Annual Accounts Receivable
Accounting for the amount of revenue that is returned to the business by client purchases of goods or services is the first most commonly asked question about a business. If a business is to be sold, it is the receivable accounts that determine the annual incoming revenue potential.
Venture capitalists and buyers of businesses ask to see documentation that proves the amount of month-to-month business revenue. Profits are determined after all expenses are paid. The receivables documentation should be accompanied by the impact of expenses directly related to providing goods or services. This documentation is known as a “balance sheet”.
Value of Assets and Depreciation
The proprietor of a business can prepare a list of business assets that have accrued over the life of the business. However, certain assets are subject to depreciation. Assets fall into several categories:
Current assets include those to which current creditors may look for payment; this may be cash or assets expected to be consumed annually. Intangible assets have no physical nature and are derived from rights conferred upon the proprietor such as goodwill, trademarks, and patents. Plant assets include land, buildings, and equipment. Depreciation occurs on buildings and equipment as a result of aging.
Value of real property and Investments
The real property and investments of the business enhance a business valuation by increasing the financial picture of the business.