Know about Business Valuation

What is Business valuation?

Business valuation is the process of determining the worth or economic value of any business.

When is Business Valuation required?

Valuation helps in ascertaining the fair value of any business or property or asset.

In general, Business valuation is required in the below circumstances:

  1. When the business is being funded by outside investors
  2. Company goes for an IPO (Initial Public Offering)
  3. In the cases of merger or amalgamation or demerger or acquisition, sale of business, divesting of business
  4. Expansion of business

The above given parameters holds as an instance of requirement of business valuation. However, there may be other reasons which probably have effect on worth of the business, resulting in valuation requirement.

Business Valuation in India:

In India, the valuation of business is not restricted and may be needed by both established business as well as startups.

In order to arrive at the appropriate value of business, various methods are followed by the Valuers. The methods include the book value, market capitalization, discounted cash flow, liquidation value and earning multipliers.

Practical usage of valuation:

The valuation helps in arriving at clarity both to the entrepreneur or new investor as well as investor on the Company’s worth.

The Owner or the entrepreneur can decide on the rate at which the Company’s business can be offered to the outsider for getting investment into Company.

The investor can decide on the aspects of investment they can make in the specific business, return of investment and the payback period.

Regulations on valuation in India:

In India, Business Valuation services are authorized to be carried out by Registered Valuers.

A Registered Valuer is a person who is registered with Insolvency and Bankruptcy Board of India (IBBI).

About the Writer:

This article is written by Ms. CS Sireesha Prakhya. She is a qualified Company Secretary. She has an overall experience of 10 years in Corporate legal, finance, and business strategies, corporate compliance work areas. She has mentored many startups. Currently serving as Company Secretary and Compliance Officer at reputed Company in Hyderabad.

The information and views presented in the article are of the Author’s personal. The information can’t be considered for any other business purpose.

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