Business Valuation Services

Business Valuation Services

Determining the monetary worth of a company is crucial, and that's where business valuation comes into play. At Enterslice, we offer top-notch business valuation services by thoroughly assessing your company and business. Our services include cost segregation analysis, legal and compliance duties, fair market value reporting, equity valuation, tax reporting, etc. Our certified valuation analysts are registered with appropriate domestic and international regulatory authorities and are fully equipped to perform a business valuation. Our valuation consultants are well-versed with the latest and conventional valuation methods, and they incorporate multiple methodologies prevailing in the market in the valuation process. Our experts work diligently to ensure that you receive the best possible service to meet all your business needs.

An Overview of Business Valuation Processes

A business valuation or company valuation is a process of ascertaining a company's or business's economic worth. In this process, all areas of a business are inspected to know their value and the value of their units. A business valuation can be used to know the market fair value of a business for many reasons. Some of the reasons include creating partner ownership, taxation, sale value, etc. There are many ways to do a business valuation. A proper business valuation will include many attributes like a company's capital structure, future endeavours of revenue generation, assessments of the company's management, etc. The valuation of a business holds a lot of value for entrepreneurs since it resembles the effort and time they put in.

Three Major Steps of Business Valuation

Valuation of Business Interest

Business valuation incorporates the services of both valuation opinion and valuation consulting services for the valuation of whole business interests or business enterprises.

Intangible Asset Valuation

This step includes the offerings for valuation opinion or valuation consultancy for single or many intangible assets or liabilities, including intellectual properties.

Fairness Opinion

This step involves creating a report addressed typically to the board of directors, describing the details of buying or selling of any asset or other business interest.

Need for Business Valuation

Purchasing

Buyers and sellers may have differing opinions on the value of a company. Still, the price that buyers are willing to pay represents the true commercial value of the firm. To determine the feasibility of an investment, it is important to engage the services of a professional business valuation provider.

Fundraising

When dealing with banks or any other potential investors, obtaining an unbiased and independent assessment of your business is often necessary. A formal report of your company's value is frequently required to instil confidence in lenders regarding the worth of your business.

Business Sale

When selling a business to a third party, it is important to ensure that you receive the best possible price while still making the asking price attractive to potential buyers. A business valuation service provider will help you in setting the best possible price.

Exit Strategy

When planning to exit a business, determining its value is crucial. Business owners should estimate cash flow and obtain an initial company valuation to understand their finances. A business valuation service provider helps determine the value of a business in the most efficient and precise way.

Methods for Business Valuation

There are numerous ways to determine the value of a business. Some of them are listed below-

Market Capitalization Method

The market capitalization or market cap method denotes how much a business is worth as established by the stocks. It is denoted as the total market value of all remaining shares. To compute a business's market cap, multiply the remaining shares by the present market worth of a single share. Businesses are generally segregated according to market capitalization as small-cap ($300 Million to $2 billion), min-cap ($2 Billion to $10 Billion), and large-cap ($10 Billion and more). Market cap is often utilized to determine a company's dimension. In vesting, businesses with greater market capitalization are usually safer investments as they denote more acclaimed businesses with typically a wider history in the market. This method is a faster and easier method for establishing a business's worth by deducing what the market thinks is valued for publically traded enterprises. For such cases, valuers normally multiply the share price by the amount of shares available. It is crucial to understand if a company's share price is $50 and another's may be $100, it doesn't necessarily mean that the latter is twice as large as the first one.

Times Revenue Method

The times revenue approach is utilized to establish the maximum worth of a business. It's meant to produce a degree of value for a company based on the company's profits or revenue for a period that occurred in the past. The time-revenue valuation will differ from one industry to another because of the domain's growth potential. That makes paralleling the businesses misleading. This approach is not always a dependable indicator of the worth of a company as income does not necessarily mean profit, or in other words, an increment in the revenue doesn't always mean an increment in the profits. This approach has the benefit of being easy to compute, specifically if the business already has a record of financial declarations with dependable revenue totals.

Earnings Multiples

The earnings multiples method is also known as the income-based approach for valuation. This method is a real estate evaluation approach that utilizes the income the possession produced to determine the fair value. It is computed by dividing the total operating income by the capitalization rate. A buyer must pay close attention to the circumstances of the property, performance efficiency, and vacancy when utilizing the income-based approach for valuation. This method is one of the three methods to evaluate real estate. The others are the cost-based method and the comparison multiples method. The income-based method for real estate evaluation is similar to the DCF (discounted cash flow) for finance. This method discounts the upcoming worth of rents by the capitalization rate. While using this method, an investor contemplates the amount of income produced and other attributes to establish how much the property could sell for in the present market circumstances.

Discounted Cash Flow (DCF) Method

The DCF (discounted cash flow) analysis aids in establishing the worth of an investment with respect to its future cash streams. The current value of presumed future cash streams is attained by utilizing a projected discount rate. If the discounted cash flow is greater than the present cost of the investment, the chance can possibly result in beneficial returns and may be worth the wait. Businesses generally utilize the WACC (weighted average cost of capital) for the discounted rate since it accounts for the degree of profits expected by the stakeholders. The dependence on the determination of future cash streams proves to be a disadvantage as it can prove to be inaccurate. This method can help those investors who are contemplating whether to buy a company or acquire securities. The DCF analysis method also aids business proprietors and administrators in shaping capital budgeting or making expenditure decisions.

Book Value Method

A business’s book value is the summation of all the line attributes in the stakeholder’s equity segment of a company's statement of financial position or a balance sheet. Typically, the book value is different than a business’s market worth. The BVPS (Book value per share) and the P/B ratio (Price-to-book ratio) are used in fundamental analysis. The book value is used in different financial proportions to aid the stakeholders in valuing a business. As a correlation to the business’s market worth, book value can denote whether a stake is over-priced or under-priced. Book value is also inculcated in a few financial proportions that aid the stakeholders in becoming aware of the business’s financial circumstances.

Liquidation Value Method

The liquidation value is the total value of a business’s tangible assets if it were to go out of business and the possessions sold. The liquidation value is the estimate of a business’s real estate, possessions, fixtures, and inventory. Assets that are intangible are not included in a business's liquidation value. It is typically less than the book value but more than the salvage value. Possessions are sold at a loss during liquidation or insolvency as the seller will have to accumulate as much cash as possible within a short period of time. Intangible assets like a business's intellectual property, brand recognition, and goodwill are not incorporated in the liquidation value, but if a business is put on sale other than liquidating, then both the liquidation and intangible asset value establish the business's going concern worth. Smart investors observe the difference between the going-concern value and a business's market capitalization to know whether the business's stakes are presently a good buy or not.

Rules Directing Business Valuation in India

The Companies Act, 2013

According to the Companies Act of 2023, it is imperative to create a valuation report for securities other than cash. The act also lays provisions for acquiring a registered valuer to follow through the steps of valuation. The registered valuer will be responsible for determining the price of shares. They will also be responsible for creating a valuation report for intellectual property rights (IPR) to know the sweat equity shares that are to be issued. The act also lays down the educational as well as professional qualifications to become a registered valuer.

SEBI Guidelines

The Security and Exchange Board of India has laid down provisions for the valuation of mutual funds, the money market, debt securities, and investments of AIFs (Alternate Investment Funds). The manager of an AIF appoints an independent valuer for the valuation of the investment portfolio of an AIF. The Infrastructure Investment Trusts (INVIT), as well as Real Estate Investment Trusts (REIT), will have to engage a registered valuer to produce a valuation report on a half-yearly basis. The act also lays down various details and attributes of the valuation of the securities mentioned above.

The Income Tax Act, 1961

The Income Tax Act lays down provisions to confer power to a valuation officer who the Income Tax Department recognizes. The Valuation Officer is required to conduct thorough steps and fulfil each and every aspect of the valuation process. The valuation officers are also known as the departmental valuation officers. The act also lists provisions for acquiring a registered valuer who fits the qualification requirements set by the authorities. The act also lays down the steps as well as the qualification requirements for registered valuers of different types of properties and securities.

Enterslice’s Startup Valuation Services

When a company has a higher market share and disrupts traditional industry methods, it can be valued higher than traditional businesses. This explains why startups disrupting their respective industries are valued higher than traditional businesses. However, valuing a startup can be challenging and requires a deep understanding of the business model, scalability, and the segment being disrupted. It's crucial to consult professionals to get a better understanding of the business model and improve the company's scalability and revenue model. This exercise will lead to a win-win situation for all stakeholders involved as it lays out a clearly defined business model and provides realistic numbers to help entrepreneurs negotiate and defend their value against potential investors. If a startup is striving to raise money, or if an investor is planning to invest in one, then it becomes extremely crucial to determine a startup business's value. A valuation will aid processes like strategic planning, internal policy and decision-making, goal determination, asset segregation, and fund allocation. The administrators of a startup can utilize valuation to assess the profitability of the business model, highlight any scope of development or changes, and allocate appropriate resources to boost the growth of the business.

Methodologies for Startup Valuation

The methods to evaluate a startup are listed below-

Cost to Replicate

Just like the name indicates, this method employs computing how much it would cost to rebuild a business from the beginning or scratch. The idea is that a prudent investor will not pay more than it will cost to replicate it. This method usually considers the tangible assets to establish their market fair value. If we consider the example of a software business, then the cost to replicate it will be calculated as the summation of the cost of programming duration that has gone into designing and writing its software. For an advanced, technologically driven startup, it will be the cost to time of patent protection, research and development, and prototype development. The cost-to-replicate method is usually seen as the initiating step for startup valuation as it is fairly objective because it is based on dependable previous expense records.

Market Multiples Method

The market's multiple methods value the business with respect to the latest acquisitions or comparable businesses in the market. It is generally preferred by investors as it provides them with an efficient knowledge of what the market is inclined to pay to pay for a business. For better understanding, let us take an example of a Fintech firm that is selling for 4 times the sales. Having knowledge about what the investors are paying for a Fintech firm will help a business owner in utilizing a four-times multiple as the ground for valuing their own Fintech firm while altering the multiples upward or downwards to keep into account the difference in characteristics of the two businesses. To evaluate a company in the initial stages, substantial forecasts should be established to evaluate what the earnings of the company will be when it reaches the stages of maturity. This method plausibly provides value estimations that come the nearest to what an investor will be willing to pay.

DCF Method

The discounted cash flow method is an important method for the valuation of a startup as it involves predicting how much cash stream the business will create in the future, and by utilizing the anticipated rate of Investment profits, this method calculates how much is the value of that cash stream. For the startup in the pre-money stages, the measure of the worth relies upon the future prospects and potential. A greater discount rate is generally applied to startups, as there can be a big risk that the business will ultimately fail to produce a sustainable amount of cash streams. The quality of the discounted cash flow relies on the evaluator's skills to predict future market circumstances and make better judgments about long-term success rates. In many examples, predicted sales and earnings in the past few years become very tedious. Anyhow, the value the discounted cash flow method produces is extremely sensitive to the anticipated rate of return utilized for discounting cash streams. Hence, it is important to get an expert to utilize this method.

Valuation by Stage

This method is typically used by angel investors to swiftly decide and come up with a rough and ready-to-use scope of business value. This method is also known as the development stage valuation method. The rough values are generally set by either an investor or an expert valuer, relying upon the stage of the venture’s economic development. A company’s progress is directly proportional to its value and indirectly proportional to the business's risks. A specific value scope will differ depending on the business as well as the investor. Startups that are just in the idea stage will be valued a lot less than the startups that are ahead of them and are making revenue. As the business proceeds to attain the milestones, investors or the valuers will assign a bigger valuation to the business.     

Challenges in Startup Valuation

There are many complications and hurdles involved with the process of valuation of a startup, even though it is an important procedure. Without the help of an expert valuation consultant, it gets quite tedious for a novice startup owner to carry forward the steps. Because of the disruptive nature of a majority of startups, they generally lack any historical financial data available to them. It is also challenging to forecast their future potential since they work in a constantly evolving marketplace. Startups are a hub for inventing revolutionary technologies or unconventional business strategies that may not have proven statistics or parallels. Due to their dependence on various rounds of funding to expand their growth potential, constant changes in valuation can be observed, making it very complex to follow the processes involved in valuation.

Fairness Opinion Consulting

This step involves creating a report addressed typically to the board of directors, describing the details of buying or selling of any asset or other business interest. The board of directors relies on this necessary paper to reach any conclusion about whether they will be making any transaction or not. Third-party companies also need access to this necessary paper before taking any step toward the prospect of any merger or acquisition. A fair value report contains a broad category of valuation-based services, which are generally done when a requirement arises in the context of any buying, purchasing, or selling/transfer of assets because of any regulatory or contractual obligations.

Major Valuation Services

Fair Market Value

FMV, or the fair market value, is the cost a commodity would retail for in the open market, presuming both the customer and the vendor are substantially equipped with knowledge about the commodity and are reacting in their own favourable interests. The FMV differs from the appraised and market value. Enterslice's expert valuation consultants will aid the process of computing the fair market value as per the guidelines issued by the regulatory authorities. A fair market value is typically used for the process of tax setting and establishing the claim payouts for different insurance agencies.

Equity Valuation

Equity valuation is one of the most significant aspects of making a fruitful investment decision. It is a process that deals with all the components and procedures required to compute a business’s equity. Enterslice’s expert valuation consultants will proficiently deliver and utilize tools to complete the most accurate value of a business’s equity. They are fully equipped with the tools and have in-depth knowledge about the process that is to be followed to attain it. It is crucial to acknowledge all the variables and the fundamental factors affecting the equity value of a business.

Financial Reporting

Financial reporting is the process of creating a necessary paper that contains all the details about the financial transactions and the financial well-being of a business. The process is significant as the investors get a view of the financial standing of a business or a startup through this report. Enterslice offers best-in-class financial reporting services and has experience working with a wide array of businesses from different domains. Our valuation consultants are fully equipped with the knowledge and expertise required to conduct this process in the most efficient way possible.

Other Regulations for Business Valuation

RBI Guidelines

The Reserve Bank of India has put many guidelines related to the steps of the valuation process. It has issued guidelines for computing the fair market value of properties and empanelling an independent valuer for the same. Enterslice is fully equipped to provide skilful and qualified autonomous valuers for the process of valuation as per the regulatory guidelines. The guidelines provide different educational qualifications required in the valuers as well.      

Ind AS Guidelines

The Ind AS guidelines are an extensive range of tools and statements designed to assist businesses in the process of generating financial statements according to the Indian Accounting Standards. Enterslice is one of the most esteemed organizations in the county, which provides optimal services related to accounting and financial reporting according to norms prescribed in the standard. Our expert valuation consultants are well-versed with the tools as well as the norms required.  

Insolvency and Bankruptcy Code

The Insolvency and Bankruptcy Code (IBC) of India contains provisions related to appointing two registered valuers to determine the liquidation and fair value of a company according to international standards. The code was created to cope with problems like bad loans and liquidating a stressed business. Our valuation consultants are accredited with appropriate regulations to do valuation as per the IBC code. They have hands-on experience in performing the mentioned valuation service.

Mandatory Business Valuation Services Offered by Enterslice

Compliance Duties

There are many regulations put forward by the authorities for conducting the process of valuation. Enterslice’s expert valuation consultants are well versed with the norms and regulations required to complete the process in a way that is legally compliant and efficient at the same time.

ESOP Valuation

Our valuation advisors will help determine the fair value of the assets precisely. They are well-versed in the terminologies as well as the process of completing the valuation of ESOPs in a proficient manner.

IPR Valuation 

Enterslice is one of the most renowned companies that are well-versed in the complexities and the attributes of an IP valuation. Our valuation experts have hands-on knowledge of the working of the procedure required for that.

Debt Restructuring

If the creditor decides to convert the debt into equity in the company, then two of our valuation advisors will help calculate the fair value to help with debt restructuring.

Enterslice’s Expert Business Valuers

Experience

Our valuation experts have hands-on experience in conducting valuation on 200+ securities of different kinds. They have the relevant experience of working on valuation for different sectors.

Accessibility

With proven experience in performing valuation for companies of different domains, our valuation experts have access to the data required, which can be used as a reference for the process of valuation.

Proven Results

Our expert valuation consultants have a proven and successful track record of providing the most appropriate valuation figures, which leads to the satisfaction of both the buyer and the seller.

Certified Valuers

Our valuers are IBBI certified and have the required educational qualification and experience in the field of valuation of different tangible and intangible assets.

Enterprise Value of a Firm

The EV (Enterprise Value) of a company is the amount of a business's total worth. The EV of a firm is frequently used as a more inclusive alternative to equity market capitalization. The process of computing the Enterprise Value of a firm includes the market capitalization of a company along with the long-term and short-term debt as well as any cash on the business's balance sheet. One of the key reasons to calculate the Enterprise Value of a firm is that it deals with different financial proportions, which are required to count a business's performance in the market. The formula to calculate the EV of a firm is "EV= MC + Total Debt – C", where 'MC' is market capitalization, 'Total Debt' is the sum of short and long-term debts, and ‘C’ is the cash equivalents. The market capitalization is calculated by multiplying the outstanding share with the present stock price. The EV lets the investors know about a company’s worth and how much they need to pay if they intend to purchase it.

EV and Business Valuation

The calculation of the EV is an important aspect of the process of business valuation. It is utilized as the ground for many financial proportions that compute the operation or performance of a business. EBITDA, or the earnings before interests, taxes, depreciation, and amortization, computes a business's probability to produce revenue and is utilized as a substitute for net income.

Metrics Required to Measure EV

Market Cap

The market cap or market capitalization is the total value of a business's remaining common and favourable shares. It is calculated by the multiplication of the present stock worth with the outstanding shares.

Debt

Debt or Total Debt is an important aspect that is included in the process of calculating the EV. The total debt of the business or a company is the sum of both long-term and short-term debts of a company.

Cash

Cash or cash equivalents are the sum of all the cash or cash-related necessary papers. It includes certificates of deposit, commercial records, money orders, drafts, marketable securities, short-term government bonds, drafts, treasury bills, etc.

Advantages of Hiring Enterslice’s Expert Valuation Consultants

There are many advantages associated with hiring a business valuation consultant. Having a thorough understanding of a company's assets is crucial, as relying on estimation can lead to inaccurate statistics. A valuation consultant has relevant experience working in different domains of the business. With the help of a valuation consultant, you will be able to establish the best possible solutions. Helping a business owner set practical and accurate estimations through precise reporting and analysis will aid the business in attracting more investors. Crucial services like audit support, transaction consultation, and fair value estimation are some of the day-to-day tasks performed by the expert, letting the stakeholders concentrate on other aspects of the business. 

Risks of Not Hiring a Business Valuation Consultant

There can be many risks associated with not hiring a valuation consultant. Estimation of the discount rate is a crucial step for a business to raise the required capital from different sources. The financial support can either be equity-based or debt-based. Without the help of a valuation consultant, it becomes difficult for the business owners to determine the rate of return or the discount rate. It is very common for a business to suffer from unprecedented market risks. Without the knowledge provided by a valuation expert, it can be difficult for the business owners to estimate any upcoming market risks that may affect the business. Talking about risks, there are many business-specific risks prevalent in the market, too, a valuation advisor can help with mitigating and navigating through those risks.

Transaction Valuation Consultants

Business valuation in terms of transaction aids the process of negotiation during any takeover or acquisition and also provides relevant information to the client. The procedure of valuation for transactions includes many attributes which highlight the fair value of the company in talks. Enterslice’s valuation experts provide objectivity and professionalism in the process of business valuation in terms of transactions according to domestic and international standards. Enterslice prides itself on years of experience and 100+ satisfied customers all over the world.