Enterprise valuation

To perform the most correct and realistic valuation possible, it is necessary to start from data that reflects the economic reality of the company as best as possible. These insights can be obtained by the following information:
 

Annual accounts: in principle, this information is always available,but it is usually not sufficient to make a full valuation
 

Trial balance and analytical accounting: The more detailed trial balance provides a more in-depth insight into the various cost and income accounts. It is therefore very useful for the preparation of a valuation. If there are different product lines or business areas, analytical accounting is a very valuable asset.

Management reporting: Interim reporting can also be an additional asset in the fine-tuning of the figures. 

Business plan: The more insight you can provide in the future, the more substantiated the valuation exercise is, since it is always based on a number of assumptions.

List of non-recurring income and expenses: Having a good grasp of one-off costs or income is also very important to have a correct picture of the economic reality of the company without impact of these non-recurring elements. Since these revenues or costs can sometimes have a very large impact on the valuation of your company, this reflection is essential. 

Strong and weak points: Consider the strengths and weaknesses of your company, but view this from the perspective of a potential acquirer

You are about to take over or sell a business, but you do not know how much it is worth? No method can determine the value of a company with perfect accuracy. Moreover, a valuation is based on a number of assumptions and these can differ depending on who makes the valuation. 

In addition, it’s not only the figures that need to be taken into consideration in the valuation process. For example, it may also be necessary to take into account the (lack of) know-how of the staff or the growth potential of the company or sector.

Finally, if you are on the seller's side, it is best to ask yourself in advance whether or not you are setting a price when approaching the market. Depending on the context, setting a price is recommended or not.

If you are on the buyer side, know in advance "how far you can jump?" and do not get carried away by an opportunity that triggers you. 
In this context, RSM Belgium helps you assessing the value of your company and supports you in defining the right strategy.

This is best viewed from the perspective of the potential acquirer. In any circumstance, it is the acquirer who will decide which elements are predominant in determining a specific (additional) prize. The recurring parameters are:

Strong EBITDA: Demonstrating year after year that the operational result (EBITDA) is at least stable and preferably rising, gives great comfort to the potential buyer. This makes future results to a certain extent predictable.

Excess cash position: It is with the surplus cash, that the business generates every year, that the acquirer can reimburse the investment. The higher the annual excess cash position, the higher the acquisition price can be.

Niche activity: What are your unique selling arguments? How do you make the difference with competitors? The more unique your position, the more value your company will have in the eyes of an acquirer.

Growth potential: An acquirer is focused on the future. The stronger you can demonstrate, through business plans, future projections of the sector,... that your activity has a future, the more candidates will present themselves as potential buyers. The more candidates, the higher your company will be rated.

Team of experts: A company based on a competent team has a strong asset. It does not necessarily create a direct added value on the price of the company. But a "one man show" pushes the value of the company down anyway.

Operational efficiency: Documented and streamlined processes, certifications, powerful tools, ... contribute to a strong image. This is certainly perceived as positive by an acquirer, who will take it into account in the pricing process.

RSM Belgium takes a critical look and reinforces the reliability of your information.

To ensure the success of the transaction, it is important to work based on reliable data.

It is a fundamental step to create trust, reassure the counterpart and provide a professional image.

The method should be determined based on the activity and context. RSM Belgium helps you to analyze the valuation methods and decide on the appropriate methods. the most commonly used methods are:

Equity approach:  This valuation method is based on the accounting data. As the accounts are kept at historical value, the assets must be adjusted to the market value.

Free cash flow approach:  The value of the company is calculated on the basis of future cash flows.  In other words, the valuation is based on predictions of how much money the company will earn in the future.

Multiples approach: When valuing on the basis of multiples, a company is valued on the basis of a multiple of results. A 'multiple' refers to the ratio between enterprise value and a key figure in the profit and loss account, such as enterprise value/operating result (e.g. 5 times EBITDA).

Specific approaches:  Some sectors have a sector-specific approach, in which case the valuation "focuses" on turnover and/or other elements.

In the analysis of the company's results, adjustments are made to the results for non-recurring expenses/revenues. Finally, the financial feasibility has to be taken into account. Is the value of the valuation such that financial institutions/banks are willing to finance the acquisition?

If you want to buy or sell a business, RSM Belgium can help you determine the estimated value of the company. 

Beware: there is often a difference between the value of a company and the purchase price / selling price.

Calculating the value of the company does not mean that the selling price is set. A valuation is a calculation based on certain assumptions. A selling price, on the other hand, is a result of negotiations.

In addition to the figures and value, other factors play a role in negotiations. For example: the number of potential buyers, the growth potential, the market sentiment ...

Ultimately, it is the goal that the negotiations result in a "fair deal" for both the buyer and the seller.