Business evaluation is the process of estimating a businesss economic or market value. Financial marketing participants use this to determine the price they are willing to pay or receive to complete a business sale. They have different purposes for this, as well as different methods for accomplishing it.@@@@A business evaluation is often required in various situations. The most common reason is that the company is up for transfer or sale. Those who are considering a business sale, as well as those interested in purchasing one, will have to assess the businesss market value. Owners who may want to retire or simply move on to other enterprises for personal or professional reasons also need to procure the services of accountants or firms specializing in this.@@@@If a business is part of a deceased owners estate, business evaluation is necessary for computation of estate taxes. For businesses with principal intangible assets such as patents, copyrights, and trademarks, a specialized business evaluation model can be used to determine the intrinsic value of the company. A business that owns some real estate may also need to have the value of these real property interests assessed.@@@@Business evaluation has three common methods asset-based, earning-value, and market-value approaches. The asset-based approach focuses on the estimating the total investments of the company. A
business evaluator may either list the business net balance sheet value of the assets and subtract the liabilities (going concern asset-based approach) or determine the net cash that would be received if all assets were solid and liabilities paid off (liquidation asset-based approach).@@@@In earning value approach, a
business valuator determines an expected level of cash flow for the company using the companys records. This is the most common of the three. Market-value approach on the other hand establishes the value of the business compared to similar businesses recently sold. It works well if there are a sufficient number of similar businesses to compare with.@@@@Business evaluation differs from
business appraisal services in the sense that appraisals only take tangible assets into consideration. Appraisals also judge the performance of a business as compared to others in the same line. As you can see, business valuation is used depending on the purpose, with a lot of approaches to do it with.
