When planning to buy or sell a business, it's important to understand the actual value of the company as opposed to the market value. Just like buying a home, relying solely on the price determined by the real estate agent may not be the best approach. Seeking expert advice is always advisable to assess the company's hidden aspects such as outstanding debts, revenue, assets, partners, and client base before making any commercial property investment.
To ensure that you know the real value of the business, consider seeking the services of a financial accounting expert who can conduct a company valuation and create projected financial statements to determine its future worth.
Kathryn Gordon, founder of Costa Consultants, is an expert in company valuation and specializes in creating pro forma statements. With a proper company valuation, you can determine the net cash, operational income, and value of assets after depreciation. Other tools such as a review of similar companies can also help to determine the business's value based on industry classification, location, size, growth rate, and profitability.
A Proper Company Valuation
The value of a commercial property investment does not rely solely on its assets. You can no longer determine the worth of a company by the brick-and-mortar building. There is much more to consider these days. First, determine whether a business is asset-heavy or service-based.
Some service-based businesses may have no assets beyond a website, good reviews, an existing client base, and high Google ratings. How do you determine the value of this type of company? You need to have a comprehensive company valuation based on actual past transactions to determine the present value.
An expert company valuation will determine three main things:
1. Net cash
2. Operational income
3. Value of assets after depreciation
Other common ways to determine the value of a business include similar company comparisons. This valuation methodology looks at ratios of similar types of companies and uses them to determine the value of another company. Financial experts do this by gathering information such assize (revenue, assets, employees), industry classification, location, growth rate, and profitability. This is probably the most difficult and time-consuming part of any business valuation.
Pro Forma Statements Creation
The value of a company is not just found in the worth of its assets and earnings. Usually, business owners will sell their company with its future earning potential in mind. This is why pro forma statements are needed.
Pro forma statements are projected financial statements, which are like educated forecasts of a company’s future. They make certain assumptions, based on a business’s past and present, to determine how the company’s finances may do in the future. It can also help a business determine how they will likely fare if they make certain investments. Pro forma statements creation will also help determine risks based on best-case and worst-case scenarios.
If you are planning to buy a business or if you are a seller hoping to gain a new investment for your current commercial property, you need projected financial statements in order to determine the company’s worth.
Kathryn specializes in pro forma statement creation by calculating a company’s current financial results and using certain projections to figure out the company’s financial future. This is not only useful when buying or selling a business but can also help an owner decide on re-investment stages and where to allocate revenue.
Investor Relations Agreement
If a business has investment partnerships it is crucial to know this before you buy a commercial propert investment. This is just one more reason to have a financial expert investigate any company you may be planning to buy.
As the business seller, you must determine which shareholders or partners own what by creating a partnership agreement. This will also outline the procedure for admitting new partners and allocating responsibilities, profits, and losses. It is best to define these terms before selling a company just in case the partners are on bad terms when the sale comes up.
Conclusion
The right financial strategy will help a business owner or a potential business owner make the best financial decisions for them and their company. It all starts with a proper company valuation and it is crucial to anyone looking to buy or sell a business.
“Do not rely on a realtor to tell you what a business is worth,” cautions Kathryn. “It’s very risky.”
In fact, realtors often hire experts like Kathryn to help them determine the value of a business they are trying to sell for their clients.
If you are looking to buy or sell a business, trust a financial expert to tell you the true value of a commercial property investment. Only an expert in financial accounting management can make the necessary evaluations to determine the real value of a company, not just what it says on the “for sale” sign.
At Costa Consultants, we serve clients all over the world focused on entrepreneurial finance and digital marketing. We are here for you from the grand opening of your business through its successful exit.
Review Our Services page and Download Our Brochure to review our areas of expertise and schedule a free consultation with us to help give your company the boost it needs. Kathryn can receive your call from anywhere in the world over WhatsApp at +506 8335 5861 and keep in touch over Google Meet and Zoom virtual meetings. Set up a meeting at your convenience on our website or contact us directly by email at [email protected]. We look forward to hearing from you!
Written by Jennifer LaCharite
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