What is business valuation and is it necessary to do valuation of a business?
Business valuation is the process of finding the economic value of a business at the present moment. Usually, for small businesses, the valuation of the business is the final amount in the balance sheet or ledger book. For medium to large sized businesses, the value of the business is the value of total equity shares on that day.
But these terms are not taken into account when determining the value of the business for various purposes like selling the business, when sharing the profits with the partner or when the business needs to be divided during any litigations or divorce proceedings.
Finding the value of a business is not a simple thing and it cannot be determined based on a single factor. There are many factors which have to be taken into account when finding the value of a business. So it is always better to hire a professional or team of professionals to find the value of a business.
What do business valuation experts do is the question that arises. The business valuation experts find the value of the business based on the proper approach which is beneficial for both buyers and sellers of the business. Also, the business valuation experts determine the value of a business based on the factors whether the business will be continued or not.
There are three ways to find the value of a business:
Based on the assets.
Based on the returns or income of the business.