Company Valuation Singapore
Company Valuation – Evaluating the Value of Your Company
Whether you have been building up your start up empire or further grounding an established operation, in order to keep your business growing and flourishing, it’s important to know the value of your company. That is to say, not the value it holds within your community but the economic value it can be assigned within the market.
It could also be crucial to keeping your personal or individual finances arranged in case of any changes in your status – for example, retirement or family-related reasons. Other than that, you may also want to attract certain types of investors – to supplement your cash flow or boost your company’s finances. Internal movements within the company may also require you to present your company valuation – in case shareholders will like to leave or buy out the other stakeholders of the business.
Three Business Company Valuation Approaches
1. Market Approach
If you are in an industry with many competitors with similar business qualities as your own, this method allows you to base your company’s valuation on that of those who have also recently sold their companies. The information on these companies’ sales can be found in the public register, making it easily accessible.
2. Asset Approach
Company valuation is easily calculated through the asset approach. It is as simple and straightforward as summing up all the company’s investments, properties, and other assets against its liabilities. Some would choose to subtract the total liabilities from assets; others go the route of figuring out how much cash (liquid assets) would be left over if all assets were sold and liabilities settled.
The problem with this method is it does not cover assets which are not recorded in, say, the company’s balance sheet. Value added by certain products and services is more difficult to benchmark and measure on a quantitative scale.
It’s also important to note that for companies which operate as sole proprietorships must undertake the task of separating personal from business assets and liabilities.
3. Earning Value or Income Approach
Banking on the future earning capability of your business, this method of calculating company valuation looks at business potential, then calculates for what that value would equal at present. It takes the historical information (i.e cash flow records, balance sheets, etc) and introduces the factor of risk or probability that this earning potential will not be successfully met.
Sole proprietorships must also calculate for the percentage of earnings or potential losses that could be incurred by a change in leadership. Especially since business potential is more often than not directly tied to the owner.
The recommended method for most businesses is a combination of one of the first two approaches with the Earning Value or Income Approach. However, this depends on the situation and market you are currently situated in.
If you are the main shareholder or company director, you definitely should hold off from assessing your own company’s value. Instead, it would be prudent to hire a valuation professional or service to do this for you. In this sense, the company valuation will be objective and transparent, therefore making it more valuable and usable for all stakeholders involved. Most especially for potential investors or buyers.