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Business Terms: The Valuation

Business valuations are a very important part of the internal workings of business, although few people may understand exactly what a business valuation is. Knowing that a business valuation has something to do with determining the market value of a business entity helps people understand the term, but it is more complex than simply saying a business is worth so much money. Many people, elements, and determinations are involved in the process, and the final number can have many implications for the business. If you have a business, you should seriously consider a business valuation because it can help you plan and prepare for the future.

What Business Valuations Involve

The reason that business valuations are so complex is that the valuation is a number that describes the economic benefits that result from both the tangible and intangible assets of a business. A business valuation is basically the creation of a hypothetical situation of buyers and sellers negotiating the price or value of an entire business. Some people may be confused about the difference between a valuation and appraisal. A valuation is a determination of the value of both the tangible and intangible assets. An appraisal concerns only the value of tangible assets.

As you can see, a business valuation is not a simple process. It involves many determinations of value that are sometimes difficult to make. A business valuation actually involves quite a large number of people, each with his or her specific role and function. Business Valuation Resources is one company that is committed to helping business with their valuation needs. As a result, they help provide resources such as business appraisers, certified public accountants, merger and acquisition professionals, business brokers, lawyers, judges, etc.

There are five main reasons to perform a business valuation: establish a price for transaction, business planning, attract capital, help with planning for estates and gifts, and meet governmental requirements. Basically, a business valuation gives you a more accurate and complete vision and knowledge of how your business is doing and where it stands.

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