Entrepreneurs in their everyday work are bound to make numerous decisions, both strictly operational and those of strategic importance. At the heart of every entrepreneur's activity lies the true main objective – which is usually to achieve economic success for the company. To this end, a question that arises frequently is how to measure the scale of success achieved by the company. According to the common approach the best measure of a company's success is its value in terms of money and defined in a reliable way. However, it is worth mentioning that business valuation may be used not only for information purposes and reporting in order to promote its value.
Business valuation is also commonly used in the following:
- For transaction purposes in order to provide the potential buyer and seller with knowledge on the value of the business that is going to be the subject of the transaction;
- For establishing the security value of incurred liabilities;
- To verify information provided in financial reports of entities with shares and stock ( testing for loss of value);
- In carving out an organised part of a company from the structures of a different business entity;
- In cases of misunderstandings between shareholders. Such conflicts usually result from one side accusing the other of acting to the detriment of the company or in relation to questioning the price paid as compensation for squeezing out;
- In order to verify a company's credit rating and establish credit security interest;
- In order to valuate assets owned by investment funds;
- In company mergers or divisions;
- In on-going conciliatory, bankruptcy or liquidation proceedings;
- In prospective increase of capital or redemption of stock and shares.
Business valuation often uses one or more methods that may be ascribed to one of the following four basic groups:
- Income-based valuation methods – the main determinant of the company's business value is seen in expected cash flow from financial activities and related risks;
- Multiplier valuation methods – in this approach the company's value is directly proportional to the values of key variables either financial or defining the company's operational efficiency (profits, number of produced units in a given period);
- Asset-based valuation methods – in this approach the company's value is defined through the value of controlled assets minus incurred liabilities;
- Real option valuation methods – serve to valuate businesses or investment projects characterised by significant dispersion of possible financial results and where performing a reliable risk assessment in relation to this is possible.
The business valuation process is not a task that may be conducted from start to end according to a fixed scheme. In most cases the goal of the valuation itself as well as the valuated company's features determine the required approach, including selection of adequate methods and tools.
RSM Poland's experts are widely experienced in performing business valuation. We have performed ca. 100 comprehensive assignments in this field. Our clients include both small family businesses and international corporations. Thanks to the valuation services we have been providing we were able to gain extensive knowledge on the nature of companies operating in various market sectors, with international entities being no exception.
Please feel invited to learn more about our approach and competence in performing business valuation projects.