Business valuation is a process used to determine the fair market value of a business. There is a lot of detail involved in the process, but in it’s simplest form, the process involves the following four steps:
- When you have a formal business valuation performed, typically the engagement begins with a list of information that’s being requested by the valuator. This can be a daunting task to gather all of the requested information, but keep in mind that it is all important information that helps the valuator understand not only the current performance of the company, but also where the company is going in the future.
- It then continues with interviewing company management, again so that the valuator can continue to understand the nature of the current business, and the industry as well.
- Next, the financial modeling takes place. This is where the valuator develops what they believe is the fair market value of the business.
- Lastly, the valuator writes a report to explain all of the assumptions that go into the valuation conclusion.
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