Business and assets valuation

What it is

Business and assets valuation is the first step and the beginning of all future decisions. The process of determining the value of a company and/or its assets is either a deal-maker or a deal-breaker. It is used to identify the fair value of a business for a variety of reasons, including but not limited to:

  1. Investment
  2. Buy-sell purposes
  3. Introduction of new partner(s)/shareholder(s)
  4. Litigation and shareholder or partner disputes
  5. Obtaining bank financing or investment
  6. Financial reporting purposes
  7. Tax reporting purposes
  8. Identifying whether the business’ value is growing, stagnant, or declining
  9. Attracting investors by assessing the company’s net worth
  10. Mergers or joint venture arrangements
  11. Family succession planning

It is essential for any of the purposes above to determine the fair market value of the company or business, as it is the basis for decision making.

It is important to note that the numbers in financial statements are not necessarily the same as the fair value of assets, liabilities, or equities. This might result due to various reasons, including:

  1. Most of the recognition criteria of assets, liabilities, and equities are based on historical cost, which by the passage of time and use might change the fair market value
  2. The change in the value of money over time is not being taken into consideration for most of the balance sheet items, and specifically for long-term and short-term assets and liabilities, which might not be realized within the classification criteria
  3. There might be some intangible assets that are not being recognized

How it affects your business

Valuation is the first step in business planning. Whether you are selling, buying, or expanding your business, you need to know its worth before making important decisions that will affect your and your company’s future.

At XB4, we understand how critical business and asset valuation can be, as knowing the real value of your business can spare you hundreds of thousands of dirhams/dollars in its sale or purchase.

Our professional evaluators are certified and have the experience and know-how to calculate and analyze the worth of your assets. The valuation process will help you minimize financial risks, negotiate buying-selling strategies, avoid unnecessary tasks and in certain cases even taxation, and defend your business in audit situations.

We provide businesses of all sizes and types with reliable valuation reports and real economic value of their businesses. There are different types and methodologies on conducting business valuation and calculating fair market value. We follow international and best practices and standards as our approach. Business valuation could be done through collecting and reviewing historic and estimated information, performance analysis, income statements, and cash flow, and examining budgets, sales contracts, purchase agreements, local and national economies, and company management capabilities, then comparing these values to similar businesses and cases within the industry through benchmarking.

So whether you are buying, selling, going through legal proceedings, or simply want to know how much a business is worth, we are here to assist you.

Why XB4

At XB4, our team of professionals is qualified and experienced to assess and calculate the fair market value of any company or business’ assets using the best practices and methodologies, and taking into consideration the guides, regulations, and factors that businesses abide by when measuring fair market value.

Our services go beyond assessing, analyzing, and comparing; we follow-up with you from the very first step until you make your final decision, in view of every related sheet, fact, statement, and detail (no matter how small). There are certain factors that mark XB4 as your no.1 choice, namely:

Reliable Results

Our team of experts is an objective third party. It ensures accurate, reliable, and realistic valuations.

Rich Experience

Whether simple or complex, business valuation is our field of expertise; we have worked on several cases that have resulted in exceptional outcome.

Professional Analysts

Our team of qualified valuators has the experience and know-how to deliver business valuations as per professional standards.

Accurate Reports

We understand the importance of valuation to any business; therefore, our team of professionals ensures the delivery of detailed, meticulous valuation reports.

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If you feel like you need more information or assistance regarding any of the above, give us a call. We are happy to offer a free consultation.

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At XB4, business valuations are implemented according to a number of methods, selected depending on your investment objectives, to ensure the most reliable and accurate results. These methods include:

1: Income approach

The income approach determines the value of a business based on its ability to generate revenues. The expected economic income from the sale or purchase is key, as the objective of this approach is to determine the value of a business as a function of the economic benefit.

This approach uses several methods, namely:

  1. I. Capitalization
  2. The capitalization method uses the expected earnings from the business and divides it by the capitalization rate, which equals the discount rate less the long-term expected growth rate.

  3. II. Discounted cash flow
  4. This method takes these inputs into consideration:
    First, project the income stream of your business for a certain period of time in the future
    Second, define the discount rate that reflects the risk of generating the income on time
    Third, calculate the worth of the business at the end of the projection period

  5. III. Multiple of discretionary earnings
  6. This method determines the business value by multiplying the seller’s discretionary cash flow by a composite valuation multiple, which is derived from a number of factors including business, industry, market, etc.

2: Market approach

This approach depends on the market and its signs for determining the worth of a business. It is one of the best to determine the fair market value with the seller and buyer acting in their best interests.

It keeps you in the know regarding the worth of other businesses that are providing the same products and services as yours so you would not settle for less or offer more.

3: Asset approach

As the name implies, this approach seeks to determine the value of a business based on the value of its assets and liabilities. The difference between the assets and liabilities will be the final value, positive or negative.

It may sound simple, but the challenge lies in figuring out the liabilities and assets to consider for valuation, because balance sheets, for instance, may not include some of the important assets.

4: Sanity approach

Here, a sanity check or sanity test takes place, whereby the value of a company or business is quickly and basically checked to see if it is valid and rational.

The advantage of this approach is that it is done fast unlike the other approaches.

5: Reconciliation of indicated values

Having considered the different approaches to business valuation, the final step would be the reconciliation of the value estimates resulting from each approach and weighing it as per its importance, market appropriateness, and the data available.

One or all of the above approaches may be deemed reliable. The result of this final step will be considered the value estimate.

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