How to conduct a business valuation.

Business valuation can be carried out by different methods. Any methodology is worthy of being covered in a dedicated course. This article lists only some of the most popular methods. Business valuation primarily includes the appraisal of assets, the valuation of intellectual property, and the valuation of a trademark, but there are other valuation techniques as well.

1. Method of the company's ability to pay for itself.
This method is used most often. A buyer who wishes to purchase a business calculates how much debt he can comfortably repay if the business is bought with borrowed funds. He should act as follows: first calculate the amount the business segment can generate annually. Taking into account that the loan payment should not exceed 70–80% of the company’s total income, and that the loan must be repaid within a certain period, a reasonable loan amount is calculated, and as a result the full price for the business segment is determined.

2. Excess earnings method.
This method is used for any business segment that generates profit. Using this method, a potential buyer assumes that the business segment is worth the same as its assets.

3. Valuation of net business value.
This methodology is used very rarely. The company's liabilities are subtracted from the sum of its assets. The resulting figure is usually used as an additional argument during business negotiations between the buyer and the seller. There are a great many methods of valuing a business; these are only the most popular. In order to
carry out a valuation of real estate< , it is necessary to properly select an independent appraisal company. For this purpose a specialized tender can be organized. Appraisal specialists will determine information regarding the business segment, and they should put forward estimates of the timeframes for conducting the valuation and the costs of all appraisal work. The law may impose state requirements on independent appraisers. For example, a specialist must not be among the founders, shareholders, or be an officer of the company being appraised, must not have an interest in the appraisal of the company from any side, nor hold any obligations or rights in the company being appraised.

The appraiser must calculate the valuation budget himself. As a rule, such a specialist works for hourly pay, on average from 20 to 50 dollars per hour. The appraiser is obliged to insure his civil liability in advance because, without a specialized policy, signing an appraisal agreement is simply impossible. A contract is signed with the appraiser, which must specify: an exact description of the appraisal object, the type of value being assigned to the object, the appraiser's fee, and information about the appraiser's civil liability insurance.

As a rule, the time for a business valuation does not exceed one and a half months, although longer periods may prevail. Skipping all the details, the preparatory processes related to valuing a business take significantly more time than the valuation itself. After the valuation, the specialist must compile a report, which must be certified with a special signature and seal. The report must not contain inaccurate or contradictory information, and all main points must be properly addressed. Of course, information about the company can be used by an appraiser for financial espionage, because he must obtain all the company's information. In this case it is necessary to turn to a reputable appraisal firm that will properly ensure confidentiality and manage its own reputation.