Business Valuation Certification

Business Valuation Certification, also known as enterprise or company valuation, is the process of determining the economic value of a business. During the valuation process, all areas of the company are analyzed to determine its value and that of its divisions or units.

Introduction to Business Valuation Certification

A business stock listed on Pakistan Stock Exchange or any other stock exchange can tell the value of the stock. However, to find out a value of a small or medium sized business there is a procedure that every business must go through. There are several steps to follow a successful valuation.

Determining the proposed use of valuation
Defining the term valuation
Analyzing and pricing the valuation
Analyzing and pricing the business process

Valuation Determination

There can be of several reasons. For example

A simple example would be that an individual or a company purchasing a business.
The owners are husband and wife and getting divorced.
The business owner passed away.
The business owner wants to retire.
Anyone who wants to change the career path.

A real world situation would be when the buyer would want to calculate the correct value and the benefits of the continued ownership in order to form a pricing strategy to begin purchase negotiation.

However, the legal world is different. The legal world values the business under the guidance of definition of value developed by the laws.

Defining the Term “Value” in Business Valuation Certification

Fair market value has been defined as the cash or cash-equivalent at which the company change hands between buyer and purchaser. The purpose of the valuation affects the value conclusions by its characterization of both buyer and purchaser in this definition.

The characterization is important for both buyer and purchaser. A buyer would assign a higher value if the business is a good fit with the buyer’s current business. The niche of the best fit will increase the business investment opportunity.

On the other hand, if the risk are higher then buyer has little or no interest at all.

Different Types of Buyers

Highest Enterprise Value

Strategically Positioned Business
Diversifying Business
Competing Business
Investors & Managers
Passive Investors
Job Seeker

Lowest Enterprise Value

Bargaining Position

The term value and price are not the same. Bargaining position is a function that consists of financial strength, knowledge, skills, and timings. A price can be negotiable; however, value is non-negotiable. Price is set for a service or a product but the value will result an economic outcome in the sale transaction.

Buyer & Seller Characterization

Buyer & seller characterization is different but not difficult. For example, a seller is at disadvantage because the business must be sold out due the owner passed away, key employee passed away, retirement, too much competition, the seller business has not developed a manager. The buyer will offer a price much lower than the business value.

Analyzing the Business

Is the business an actually a business or a career? It may not be a business but individual’s tool of trade. The appraiser must identify if it is a an actual business or a career and what contributes value to business.

A business is described by its financial statements. These statements are based upon costs and focus on tangible properties. These costs are not market value. The value may be is in intangible properties such proprietary software, marketing and distribution systems, personnel’s education, talent, and experience, computer programs and database, management systems, and patents or any thing similar to it. The intangible properties are not part of financial statements.