Estimated Reading Time: < 4 minutes
Starting up your workday, as a business owner, executive, or manager, you’ve most likely got a checklist or group of essential tasks. Prioritizing can make all the difference. It takes a great deal of organization and foresight to handle the macro and micro. At Aldridge Borden, we help our business owners optimize financial goals by increasing business valuation.
WHAT IS A BUSINESS VALUATION?
Too often, we think of business valuation as a metric exclusive to big public companies with household-name products and services. This idea couldn’t be further from the truth. Business valuation is about far more than just a stock or purchase price. Business valuations provide deep insight into your company’s health, where you can improve, and how.
Our expert valuation CPAs here at Aldridge Borden work with countless businesses throughout the Montgomery area and beyond to find out what lies behind their valuation and how we can optimize your balance sheet.
MEASURING BUSINESS VALUATION
There’s no singular method for valuing a business. The five most common business valuation methods are:
- Asset Valuation
- Historical Earnings Valuation
- Relative Valuation
- Future Maintainable Earnings Valuation
- Discounted Cash Flow Valuation
If you’re asking the great investor of all time, Warren Buffett, he’ll tell you it’s discounted cash flows. If you’re asking a plaintiff during an arbitration, it’s the version that best suits their case. For most businesses, however, it’s a little of all five.
As a result, business valuations can get tricky. Looking at historical earnings alone won’t give you enough information about what’s to come. Additionally, asset valuation doesn’t tell you as much about the cash flows from operations.
That’s why you must work with a professional CPA from Aldridge Borden. An accurate valuation can differentiate between rapid growth, earnings increases, and stagnation from hidden laggards on your profit/loss statement.
WHAT CAN YOUR BUSINESS VALUATION TELL YOU?
A certified public accountant will provide a valuation that provides a snapshot of the most important financial metrics. These include:
- Net Income
- Free Cash Flow
- Debt to Equity
Value of assets used in the business Net income tells you how much profit your business generates over a given period, usually a quarter or a year. Debt to equity illustrates the debt burden a company carries compared to its shareholder equity. The value of assets measures how much shareholders would receive if they sold every asset. Furthermore, value of assets is a metric commonly used to measure the sale value of a company.
Free cash flow (FCF), on the other hand, is often viewed as the best way to value a business. FCF considers how much your company earns before deductions from net income, such as depreciation, amortization, debt payments, and other items that don’t have to do with operating expenses. FCF measures all the money a company can use at its discretion, outside what you owe for salaries, wages, property leases, and equipment.
It’s almost impossible to run a business without understanding your small business accounting, such as free cash flow, debt to equity, or net income. Working with a knowledgeable and experienced CPA from Aldridge Borden provides you with detailed, accurate business valuations that help you identify what’s going on with your business.
WHY CALCULATE YOUR BUSINESS VALUATION?
Business valuations may seem like abstract tasks meant for select events and circumstances. In reality, understanding your company’s value at all times is necessary. Many of the most important decisions you can make depend on the value of your business.
DEBT & BORROWING
Since banks and other lenders are remiss in giving loans without accurately understanding your company’s value, lenders will want a comprehensive overview of your business, taking from all valuation methods discussed earlier.
FINDING INVESTORS
Whether you’re seeking money from friends and family or a severe venture capital arm, providing an accurate valuation is utterly crucial. You must know every aspect of your business, from net income to FCF to assets and liabilities. Aldridge Borden provides this information and much more so that it’s at the tip of your fingers.
PREPARING TO SELL
It’s almost impossible to look for a buyer without understanding how much your company’s worth. Buyers will be wary when opening discussions with an owner who can’t provide an accurate picture.
WHEN SHOULD YOU INVEST IN A BUSINESS VALUATION?
In reality, calculating a business valuation may reveal deeper problems for many owners and managers. Perhaps your business hasn’t kept proper accounting records. Maybe you don’t have an adequate accounting staff. As a result, a lack of documents and resources can reveal the quality of management and the fundamentals of your business.
More than your business’s financial health, Aldridge Borden can review the quality of your accounts, financial statements, tax documents, and more. Our small business and business valuation CPAs have helped hundreds of businesses across the Montgomery, AL, area better organize and understand their books. Aldridge Borden can turn what might seem like a mountainous endeavor into a massive boost to your business’ finances.
LET OUR BUSINESS VALUATION EXPERTS AT ALDRIDGE BORDEN HELP YOU TODAY
Aldridge Borden’s team of highly qualified and experienced CPAs can help you with everything you need.
Starting from the ground up, we can help you improve your company’s books and records. This process will help you understand the state of your business. In addition, it may also help reduce expenses, increase net income and cash flow, and reduce some of the risks to your company’s health. We can suggest tax and cost-saving strategies that may help increase cash flows. Consequently, we can find opportunities to reduce debt.
Concerning anything related to business valuation and understanding the financial health of your business, our Aldridge Borden advisory services can help.
Gaining comprehensive knowledge of your business valuation is too important to delay. Contact Aldridge Borden and schedule a consultation with one of our valuation CPAs today.
FOR BUSINESS VALUATION SERVICES, CONTACT ALDRIDGE BORDEN
In conclusion, business owners must possess a firm knowledge of their company’s valuation to make important decisions. A proper understanding of a business valuation requires quality bookkeeping and an understanding of how to value your business. Performing these functions can be difficult without a dedicated accounting staff for this task.
Aldridge Borden can help you determine your company’s valuation and better understand your business’s financial health and prospects. To calculate your business valuation with a professional CPA, call Aldridge Borden today at (334) 834-6640.