What Does a Business Valuation Report Include?
Question: What Does a Business Valuation Report Include?
Every business owner should have a business valuation report on file and update the report every year. Keep in mind that every business valuation is different, because of the nature of the business and the type of business and the industry. Here are the elements that are typically included in a business valuation report:
Answer:
Business valuation is conducted in many circumstances, from the proposed sale/purchase of a business, to a buyout, to death of an owner.
A typical business valuation report, prepared by a business appraiser or business broker, usually contains these general elements:
Assumptions and limiting factors
Assumptions might include time needed to convert assets to cash, whether the business needs to be sold quickly, and depreciation method.
The purpose of the valuation; in other words, why is the business being valued.
The standard of value used to create the valuation (fair market value, liquidation value, or other method.
The date of the valuation is important because values change with changes in the company, the industry, and the economy. That is one reason to keep a business valuation report up to date.
The economic outlook provides a background for the valuation; the value of a business can change based on market forces at the time of the valuation. The economic portion of the report might include a discussion of Gross Domestic Product (GDP), interest rates, prices and exchange rates, key economic measures, and the state of business financing in general (how willing are lenders to finance business purchases.
The industry outlook provides another background element and some key benchmarks for the business being valued. How well the company is doing compared to other similar companies in the industry is a key indicator of its value.
An overview of the business includes financial performance of the business over the past three to five years, adjustments to financial statements, a discussion of legal structure and owner equity issues, employees, management, assets and liabilities, and other data reviewed in the process of creating the report.
The statement of value prepared by the valuation expert is a conclusion which discusses the valuation methods used, which methods were not used, an explanation of the weight given to valuation methods used, and a discussion of the firm's marketability and overall value rating.
The financial data backing up the valuation report is often presented as an appendix to the report.
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Every business owner should have a business valuation report on file and update the report every year. Keep in mind that every business valuation is different, because of the nature of the business and the type of business and the industry. Here are the elements that are typically included in a business valuation report:
Answer:
Business valuation is conducted in many circumstances, from the proposed sale/purchase of a business, to a buyout, to death of an owner.
A typical business valuation report, prepared by a business appraiser or business broker, usually contains these general elements:
Assumptions and limiting factors
Assumptions might include time needed to convert assets to cash, whether the business needs to be sold quickly, and depreciation method.
The purpose of the valuation; in other words, why is the business being valued.
The standard of value used to create the valuation (fair market value, liquidation value, or other method.
The date of the valuation is important because values change with changes in the company, the industry, and the economy. That is one reason to keep a business valuation report up to date.
The economic outlook provides a background for the valuation; the value of a business can change based on market forces at the time of the valuation. The economic portion of the report might include a discussion of Gross Domestic Product (GDP), interest rates, prices and exchange rates, key economic measures, and the state of business financing in general (how willing are lenders to finance business purchases.
The industry outlook provides another background element and some key benchmarks for the business being valued. How well the company is doing compared to other similar companies in the industry is a key indicator of its value.
An overview of the business includes financial performance of the business over the past three to five years, adjustments to financial statements, a discussion of legal structure and owner equity issues, employees, management, assets and liabilities, and other data reviewed in the process of creating the report.
The statement of value prepared by the valuation expert is a conclusion which discusses the valuation methods used, which methods were not used, an explanation of the weight given to valuation methods used, and a discussion of the firm's marketability and overall value rating.
The financial data backing up the valuation report is often presented as an appendix to the report.
Back to Business Valuation 101
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