A&A Associate – Business Valuation Assurance
Business valuation results depend on your assumptions
Three business valuation approaches
Three fundamental ways to measure what a business is worth.
The asset approach views the business as a set of assets and liabilities that are used as building blocks to construct the picture of business value. The asset approach is based on the so-called economic principle of substitution which addresses this question:
What will it cost to create another business like this one that will produce the same economic benefits for its owners Since every operating business has assets and liabilities, a natural way to address this question is to determine the value of these assets and liabilities. The difference is the business value.
Sounds simple enough, but the challenge is in the details: figuring out what assets and liabilities to include in the valuation, choosing a standard of measuring their value, and then actually determining what each asset and liability is worth.
For example, many business balance sheets may not include the most important business assets such as internally developed products and proprietary ways of doing business. If the business owner did not pay for them, they don’t get recorded on the “cost-basis” balance sheet! But the real value of such assets may be far greater than all the “recorded” assets combined. Imagine a business without its special products or services that make it unique and bring customers in the door!