What exactly is a business valuation?
Most owners understand a valuation as an appraisal of sorts, and valuations do determine the value of the business based on the valuation’s intended purpose. However, there’s a lot more to it. A business valuation is an involved process — or at least it should be.
Valuations analyze the company’s ability to produce cash flow while factoring in other quality measures to determine the economic value of a business or company unit. There are several different ways to calculate a business’s value depending on how the parties involved will perceive the value. Again, a valuation determines the value, based on its intended purpose. Purposes of valuations include preparing for a sale, adding a partner to the ownership mix, taxation, divorce proceedings, and many other business and legal purposes.