The 10 reasons for a business valuation

Valorisez votre société
Elsewhere
Publié le 29 March 2023

Several periods in the life of your company may require knowing its real value. This is the case when fundraising, where investors will ask the entrepreneur to justify his valuation. But also in the event of an industrial backing, a sale between shareholders or the transfer of your company.

Experts for more than 30 years in the field of financial valuation and consulting, we assist you in estimating the objective value of your company and carrying out the strategy you have chosen. This valuation is necessary to convince your interlocutors of the true value of your company.

This procedure is definitely part of an overall company strategy.

A quality financial valuation study must take into account many elements to result in an objective and well-argued value. In particular, we analyze intellectual property, with Brandon IP, but also the market, the business model, the business plan etc.

To not be in a hurry, we recommend that you launch a valuation study before engaging any procedure to be ready on D-Day.

 

The 10 reasons for a business valuation

 

To help you with that, we reveal below the 10 reasons to value your company:

1. Negotiate funding with financial organizations

First case, you want to get a loan from your bank or any other financial institution. Your interlocutor will need to know more about your activity, its markets and its sustainability before being able to make a decision. A financial valuation study of your company will allow him to get a clear idea of your market and your development perspectives. The substantiated valuation of your company will be a strong argument in support of your statements. The more the value of the company is argued, the higher the probability of obtaining your loan will be.

2. In preparation for fundraising

You wish to open your capital to investors to meet your development strategy. For what amount? You cannot appear before your interlocutor and ask him to invest a certain amount without justifying the value of your business. In this case, carrying out a valuation study is indispensable! Indeed, investors are about to sign a check to enter your capital, with a certain degree of risk. They need to be convinced that they are making the right choice by participating in the adventure, but also to be able to estimate the risk, and what the investment will bring to them.

Thanks to a valuation study of your company carried out by a domain expert, investors will have the necessary elements for a fair assessment of the company.

The Brandon Group provides you every skills and references to support you in this process and beyond, in support of negotiations.

The 10 reasons for a business valuation: fundraising

3. In the event of backing with a large group

Carrying out a valuation study is also useful in the case of industrial and financial backing. As in the case of a fundraising, a major company will enter your capital. It is therefore necessary to determine the value of your company to accurately estimate the level of participation that can be attributed according to the amount invested. Once again, if the value is overestimated, the trust placed in by the incoming company could be altered. On the contrary, if the value is underestimated, you would face excessive dilution of your equity stake. A financial valuation study validated by an expert therefore provides a solid basis for negotiations.

Learn more about industrial backing.

4. To avoid the risk of dilution of founders and historical investors

Start-ups are often faced with multiple fundraisings that help them finance their development in new markets. Each fundraising causes a dilution of the founders’ participation in the capital and therefore of their decision-making power. With time, the arrival of new shareholders can cause them to lose control of the company. Similarly, if a historical investor invests once again, the shares of the founder will be reduced. To anticipate this risk of dilution, you must include the valuation as part of your company’s overall strategy. Brandon Valorisation assists you through the process. It’s our job!

The 10 reasons for a business valuation

5. When you want to buy your business partner’s shares

Do you want to buy your business partner’s shares? Here again, a financial valuation study carried out by an external firm will be useful if you wish to avoid a conflict on the value of your company.

6. During a merger or joint venture

The valuation is essential in the context of a merger between two companies or in the event of a joint venture since it makes it possible to calculate the contributions of each Party and to allocate the capital between them. In the event of a merger, the absorbing company may consider a capital increase by contribution in kind, which can only be done after valuation and validation by a contributions auditor.

The 10 reasons for a business valuation

7. Transfer your shares to a holding company

Strategically, it may be interesting to transfer the shares you have in a business to a holding company. The profit will depend on the valuation that will have been made prior to the transmission, as for traditional transfers.

8. For setting up an LBO

The LBO (leveraged buy-out) is a financial arrangement allowing to buy a company by using a large part of debt. The idea here is to create a holding company that will borrow money to buy the company. The governing members of the holding company may be the same as those of the target enterprise, or they may be outside investors. This solution allows you to benefit from a significant financial leverage. There is another advantage in terms of taxation since only the holding company will pay corporation tax for all the companies in the group.

In that case also, a valuation study of the target company is required. Here again, our expertise may be useful.

9. Negotiations within the framework of the sale of the company (retirement etc.)

In the event of the sale of a company, the valuation study will make it possible to calculate the value of its activities and its assets, including intangible assets. For several years, your company has developed, perhaps thanks to research and development, patents, trademarks, or the development of software and know-how specific to your field. These assets are significant advantages compared with your competitors!

Taking these assets into account in the financial valuation study will help optimize the transaction when selling your company.

10. Prepare for an IPO

When an initial public offering is being considered, the intervention of a specialized consulting firm for its financial valuation is necessary. The price of the shares must be calculated precisely, as well as the volume of shares to be issued. Knowing the valuation of your company is essential before launching the operation. This makes it possible to prepare and position the company in relation to its competitors and thus to highlight the strengths of the company to the markets.

Prepare for an IPO

 

Do you wish to value your company? Our experts are at your disposal to answer all your questions on this subject and propose a tailor-made solution, fully adapted to your needs and to assist you in this strategy.

Contact us

 

To know more…

 

Photo credits: Unsplash/Pixabay

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