You are planning to buy a company in France or selling your business. In this article, CF Henderson US and its team of CPAs will give you the tools to understand business valuation and to draw up an analysis of the financial performance.
What is a business valuation ?
It refers to all the required tools to diagnose the health and value of a business in the financial market. The objective is to collect key data on the company to look at its strengths and weaknesses in order to make the right choices in terms of strategy or sales price.
For example, if you run a business that you plan to resell, it is essential to know its value before starting the process. This will prevent you from offering a purchase price that is out of step with the market.
What is a business valuation used for ?
The purpose of the business valuation is to draw up an overall assessment of the situation by analyzing and evaluating the financial performance or the internal and intangible functions of the company.
A business valuation can be carried out in many cases: company for sale, restructuring, donation, calculation of the solidarity tax on wealth (ISF), merger, capital increase, new shareholders, initial public offering, etc.
The valuation mission can be recurrent because it is not only necessary for the purchase or sale of a company. Indeed, as part of your business management, you can start an annual assessment process to find out more about the value of your intangible capital. A CPA can help you with this task.
How to conduct a business valuation ?
What are the criteria to be assessed ? Who can help you with the valuation of a business ? The CF Henderson Cabinet takes stock to help you see things more clearly.
When taking over or selling a business, you must conduct an evaluation of its specific characteristics, but also of its environment and other businesses in the sector. There are several approaches for this :
The evaluation focused on the company’s assets (its holdings, its debts).
- Thanks to the most recent balance sheet, the asset approach is a technical but promising assessment, conducted by holding experts. However, with the asset study, the ability to generate profits and cash flow, or even intangible elements are undervalued.
The evaluation of the company’s profitability.
- The evaluation of cash flows, financial ratios and the writing of a projected business plan with the analyzed elements allows to define the value of the company. The basis of this assessment are the net income and the operating income.
Estimating the value of a company before buying it should not solely be done on financial criteria based on the company itself. It is also necessary to have a comparative outlook and in particular to go and see the sale prices of similar companies (business line, size, turnover).
It is also required to know more about the non-financial elements: company culture, customers, employees, reputation… in order to develop all the aspects of your company valuation.
By who ? For what ?
Given the many contexts requiring the business valuation, it is essential and compulsory that the CPA guides the business manager for the valuation of his business. The CPA will be most efficient in managing the situation, from diagnosis to setting a price, as well as negotiation.
CF Henderson US firm can highlight an expert assessment to evaluate your business — in a wide variety of business lines, both on the buyer’s and seller’s side.
It is essential to have the support from an outside perspective capable of sifting through the financial data. An accounting firm like CF Henderson US can take on this assignment and perform a comprehensive business valuation, whether it is about buying it or selling it. A CPA has these criteria, a financial outlook, the necessary legal advice but also sectoral data, allowing to determine a fair valuation.