A Cash Flow Statement Gives You Important Feedback On Your Business Valuation Planning

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Business Valuation Planning

Business valuation is very important for a business owner because it gives a clear picture of the company’s strengths, weaknesses and progress. Determining the value of a business is considered necessary for various purposes such as estate planning, business succession planning, loan application, buy-sell financing, charitable giving and financing.

In order to optimize the value of the business for future sales, business valuation planning is required. It is very useful for business owners who want to prepare their business for sale, market their business to buyers and facilitate the transfer of ownership of their business. A business valuation prepared before liquidation helps the business owner save time and money. So, proper planning of the business assessment is crucial.

There are several business valuation techniques, ranging from simple business valuation methods to more complex processes involving asset valuations and industry average valuations. The income approach, the asset approach and the market approach are the three main approaches that determine the value of a business. Before applying a particular business valuation method, the appraiser should reconcile the profit and loss account and the relevant balance sheet.

Certain business valuation techniques give importance to the future, while others emphasize historical performance. If the company is being valued for sale, then a valuation that emphasizes future earning power would result in a higher valuation than one that emphasizes historical performance. Earning power can be measured as net income, operating income or cash flow. On the other hand, if the business is being valued for estate, gift, inheritance, or ad valorem taxes, then a conservative valuation based on historical earnings will result in a lower value.

The help of professionals, including business brokers, business advisors or certified public accountants, is necessary for an accurate and reliable assessment of the value of the business. Today, a number of business brokerage firms provide advisory services to help your business flourish.

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