So what do you need before you value your Business. Here is the checklist that you can refer to before you value your Business.
1. Know The Purpose Of The Valuation:
You should know the purpose of valuing your business. Either you are valuing your business for legal purposes, restructuring purposes, boosting its value, buying it or selling it.
2. Collect Financial Information:
You need to collect the last three years of financial information, including Tax return of the company, and of directors, Profit and Loss Statements, Balance Sheets and Depreciation Schedules.
3. Asset Information:
Similarly, collect details of all major assets in use in the business and any valuations of the assets as well as the real estate. Likewise, collect management accounts (Record of financial performance since the last figures), budget and performance to past budgets, any profit/cash flow projections and detail of any contingent liabilities, e.g. legal disputes, guarantees. Compile any maintenance agreements or lease agreements pertaining to the plant and equipment.
4. Collect Market Information:
You should firstly know which market your business is in and then know either that the market is growing, steady or shrinking. You also should know your business barriers, competitors, types of customers, suppliers and market share that your business has.
5. Collect Other Commercial Information:
Collect any particular licensing or regulatory requirements, e.g. health, safety etc. that is performed in your business.
6. Analyse The Information Collected:
In the assessing the information assembled, consideration of the factors affecting value is required. These factors include:
Profit Margin
– Low profit margin reflects higher risk and trends in margins may also be an indication of the business life cycle and its future prospects.
– High profit margins can reflect the competitive environment in which the business operates.
Stability
– A business with a track record of steady earnings is potentially a more reliable generator of future income than a start-up business or one with unstable past.
Types of income streams
– Differentiate between one off transactions e.g. consulting/project business and regular continuous streams of income that might come from regular clients.
7. Staff:
– Complete a roster of staff including hours worked, skills required, wages, bonuses paid etc.
– Any copies of staff contracts.
8. Systems:
-Collect operations and training manuals.
-Detail systems within the business including software, sales systems.
9. Intellectual Property:
Compile a list of intellectual property, including material which is Copyright, Trademarks, Patents and Designs and other intellectual property.
10. Suppliers:
Details of any supplier contracts or special arrangements
11. Clients:
Do a quick analysis of your client base, noting size of your major clients and the percentage of your sales that they represent.
12. Franchise:
– If you are a franchisor business, make sure your franchise agreement and disclosure documents are up-to-date.
– Make sure any franchise agreements have not lapsed and that all renewals are in process in a timely way.
13. Products and services:
Make a list of the products and services that you sell or provide. What is your pricing policy?
14. Information Technology:
Make of list of your IT assets including software that you use, accounts you have with cloud based services and any other IT assets.
15. Competition:
List your major competitors and the difference between services and products you provide.
16. Other Information:
Collect other pieces of information that might affect business value such as:
– Skills required of management and staff
– Quality of management
– Industry Lifecycle
– Reliance on owner operator
17. Select Appropriate Valuation Method:
Once all the above steps are completed. You can choose a appropriate calculation business valuation methods from below:
– Asset Valuation Method
– Market Valuation Method
– Rule of Thumb Method
– Discounted Cash Flow Method
– Future Maintainable Earning Method
