Chartered accountants play a vital role in any commercial venture or business. They specialise in bookkeeping, auditing, taxation and other financial services. They can also play an important role in business valuation.
Business valuation is the process of evaluating a company, after going through its assets, liabilities, cash flow, good will, pending order book, skilled and unskilled staff, etc. This is not a walk in the park.
The value of any enterprise is only worth the amount you are willing to spend on it, but a proper evaluation is necessary for various other purposes too. ScolariComerford explains that an accountant can really help you with this task due to a number of reasons.
• Accountants are excellent at going through books, records, accounts and audit reports.
• They can understand the figures and the implications of these figures to the future of the business. They understand legal and other account related documents.
• After proper scrutiny they can arrive at a figure, which is the net asset valuation.
There are also other methods if the accounts and other records of the company are not in order. These methods include the following:
• Industry average method and the rule of thumb method. The industry average is arrived by studying the sale price of other companies belonging to the same industry, which have been sold in the last few months.
• The rule of thumb refers to a ‘factor’ that helps arrive at the value of the business. The profit/loss, assets, liabilities, etc. are all considered before arriving at this ‘factor or multiplier’.
If the business is a small one, then evaluating it would be much simpler. But if it is a large enterprise, then chartered accountants are indispensable in getting the correct evaluations done. They can help you understand the exact value of the business you are buying or selling by giving their unbiased opinion.
This kind of exercise is necessary when a business owner decides to sell or buy a business. Sometimes this kind of evaluation is also needed for loan approvals, planning, calculating the net worth, while making a will, and others.