Simplified Business Valuation Process by Swift and Wise
The business valuation process involves a set of steps that need to be followed in a specific order. It also includes various formulas to calculate values and specific accounting rules for different situations. This process requires a lot of experience and knowledge to get it right. Please know that we keep your information completely confidential and only use it to suggest the right valuation services for your needs. Your privacy is essential to us, and we take it seriously.
1. Initial Discussion
The first step of any business valuation is to determine the scope of the engagement. This includes identifying the number of shares to be valued, the valuation date, the premise of value (going concern or liquidation), and the purpose of the valuation. The interest to be valued can be for the entire business or a specific percentage. The premise of value could be either the going concern premise, assuming continued operation, or the liquidation premise, assuming the sale of assets individually or in groups. The valuation date is crucial as it determines the value based on information known as of that specific date. The purpose of the valuation may influence the process and conclusion.
2. Engagement Letter
After understanding your objectives, we will send a formal engagement letter via email from one of our representatives. This letter will outline the terms, goals, timeline, and fees. The engagement letter should be signed electronically via DocuSign. Once you sign the engagement letter, we start collecting the necessary financial documents.
3. Engagement Retainer Fee
Per our standard practice, we require an engagement retainer fee of 50% of the total fee before commencing our work. This retainer will be applied to the final invoice. All outstanding fees must be paid before we release the final report. For payment, we accept all credit cards through Stripe and will provide a payment link once we have received the signed letter.
4. Collecting Required Documents and Data
We will need tax returns or financial statements for the last three years and a balance sheet as of the valuation date. Additionally, we will send a questionnaire to be completed by the subject company's management. Depending on the company's nature, structure, and the purpose of the valuation, additional documents may be required. Once the client reaches out to us, we will provide a complete list of all the necessary documents. We also conduct interviews with management to discuss the company's past, present, and future performance.
5. Valuation Execution
We analyze the company's financial statements, industry data, and economic conditions. We compare your company’s performance to similar businesses using metrics like price-to-earnings ratios, price-to-book values, and price-to-free cash flow. We use three main approaches to value: asset approach, income approach, and market approach. Discounts or premiums may be applied to reach the final estimate.
6. Determination of Value, Written Report and Discussion
We reach a conclusion of value supported by a comprehensive report that outlines the information, valuation approaches, and assumptions. Once the report is ready, we send it to you and schedule a call to discuss any questions. We review the final report with you and make any necessary revisions to ensure it meets your needs and expectations.