A true test of accuracy and validity of any valuation is the price at which a company would willingly change hands in the marketplace. The valuation of a privately owned company is both science and art. Since no two companies are exactly alike even within the same industry, trade, or service, there is no one formula or method that is all-inclusive. VR M&A uses a comprehensive, multi-method approach that considers relevant factors that are unique to a particular company including: company history and longevity, future economic outlook, tangible asset value, intangible asset value and industry ratios.
Also considered are factors such as historical net cash flow, probability of continued profitability, risk competition, technology changes, ownership transition training, owner non-compete and consulting agreements as well as working capital requirements. There are many reasons to value a company. Whether it is for an anticipated acquisition or divestiture, a partnership buy-sell agreement, stockholder concerns, martial dissolution, or estate planning, a professional valuation makes a world of difference. Since there are many reasons to value a company, there are many different levels of valuation services. From a simple target value for selling your company to a complex IRS-rated valuation, VR M&A can handle the assignment internally or by working with independent third parties.
Risk impacts value. Risk is defined as "the degree of certainty or uncertainly as to realization of expected future returns." Risk takes many forms in mid-size businesses: size of company, depth of management, reliance on key personnel, company-specific concerns, industry trends and, to a great extent, available return on alternative investments (stock market, bonds, t-bills, etc.).
There are three broad approaches to valuation: income, market and asset. Within each approach there may be many different methods that must be considered. After careful consideration of the relevant factors, a reconciliation of the related approaches is performed to determine which approaches are most relevant to the purpose of the appraisal assignment.
In its' simplest form, a business is an income-producing entity. The income approach places a value on the expected future income while compensating for risk.
The asset approach basically just places a fair market value on the asset of the business. It is usually used in liquidation or with companies that are intensive, but have poor financial results.
The market approach uses information based on actual transactions of similar and relevant companies.
Why Choose VR M&A?
The Bottom Line: When you use VR M&A, the valuation process will be handled professionally and confidentially.
- A comprehensive approach.
- A true test of accuracy.
- A true valuation, both a science and an art.