Why have the value of a company assessed?
Have the value of a company can be of interest in a number of scenarios, such as when selling a business or looking for financing. It can also be useful in the case of fund-raising, restructuring or mergers.
Assessing a company's value allows you to :
- Determining the right selling price for a sale
- Preparing to raise funds or bank financing
- Negotiate on your behalf with potential investors or buyers
Value vs. price
It's important to distinguish between the price of a company and its value, which are separate. Assessing a company's value is used to determine its price. The value is the theoretical estimate of what the company is worth based on its fundamentals, such as revenues, assets, debts, growth prospects, market position, and so on.
The price is the amount that will be paid to acquire the business. The price is influenced by various factors, such as value, supply and demand, or the economic situation.
The value of a company can be estimated at 5 million and sold for 10 million, thanks to its potential. This was the case for Instagram, whose value had been estimated at less than $100 million but which was bought out for $1 billion. The following factors can influence the price, such as:
- Yield potential
- Competition
- If it's an SME or a large company
The main business valuation methods
In Switzerland, there are several ways to have the value of a company assessed. These different methods can also be combined to suit today's market.
The intrinsic value method
To assess the value of a company, you can use the intrinsic value method. This easy method involves analyzing short-term assets (stock, money in the bank) and long-term assets (machinery, buildings), while subtracting taxes.
This method is limited in that it does not take into account future returns or other more complex factors. If your business is very profitable, other methods will be more interesting and will give you a higher value.
The yield value method
Unlike intrinsic value, performance value focuses solely on a company's ability to generate profits in the future. It also takes into account expected profits, possible risks and the expected return.
The "practitioner" method
A less limited valuation method is the practitioners' method. This is the method used by tax authorities to assess the value of a company that is not listed on the stock exchange. To calculate the value with this method, you can use the following calculation:
Market value = (2 x yield + intrinsic value) / 3
Market multiples method
This method of assessing a company's value takes into account the following factors values other companies. In other words, we compare a company with other similar companies that have recently been purchased. This allows us to see whether the theoretical valuation of a company is in line with the reality of the Swiss market.
This method can be more complex for Swiss SMEs, which are often unlisted, although it is important.
When should a company's value be assessed?
Given the various factors to be taken into account, the evaluation of a company's value should be carried out several years before a sale or transfer, whenever possible. You will need to anticipate the tax consequences of the transaction.
So give yourself enough time to optimize your company's financial and tax structure to obtain the best valuation.
Frequently Asked Questions
Why have the value of a company assessed in Switzerland?
Having the value of a business assessed is essential when selling, raising capital, restructuring, inheriting or seeking financing. It enables you to set an appropriate selling price, anticipate tax implications and negotiate effectively with potential investors or buyers.
What's the difference between a company's value and its price?
The value of a company is a theoretical estimate based on its fundamentals (revenues, assets, debts, growth prospects, etc.), while the price corresponds to the amount actually paid in the transaction. The price may be influenced by supply and demand, economic conditions or potential future returns.
What are the main factors influencing a company's selling price?
The selling price can be influenced by the potential return, the competition, the size of the company (SME or large corporation), the market situation, as well as intangible elements such as reputation or clientele.
When should a company's value be assessed?
It is advisable to assess the value of your business several years before a sale or transfer, in order to anticipate tax consequences and optimize the company's financial structure.
Why is the market multiples method sometimes complex for Swiss SMEs?
The market multiples method is based on comparisons with similar transactions. However, many Swiss SMEs are not listed, making it difficult to collect reliable comparable data.
Who can carry out a business valuation in Switzerland?
Valuations can be carried out by trustees, specialized firms, chartered accountants or online platforms offering free or paid estimates, depending on the complexity of the case.
Do I need to keep my documents after unsubscribing?
Books and records must be kept for 10 years, and documents relating to real estate must be kept for 20 years, even after VAT deregistration.
