Assessing True Business Value By Recasting Financials

Business owners typically review high-level business health financials in conjunction with tax deadlines. This often results in a review of way to minimize taxes and maximize profits. However, this is the wrong approach to take when attempting to assess the true fair market value.

Recasting the business financials is imperative to determine the true fair market value of a business. The process allows the business to be thoroughly and objectively scrutinized to prevent a false financial status of a business, leaving only those things that are truly representative of the real value of the business.

Some of the factors that can create a false impression of a company’s worth could include travel expenses, incentives, charitable gifts and loans. Expenses typically used as part of business strategy for maximizing tax reduction or that may mix personal and business accounting can all distort the real picture of the business’ financials.

Recasting financials can be helpful anytime a buyer’s eye view of a business’ financials is required. When seeking a true reflection of business assets, liabilities and earning power, recasting is a necessity. Recasting financials is a way of correcting the false impression that may be created by company financial statements, which include those other items that should not be used when assessing the true financial state of a company.

Once financials have been recast, the next step in assessing the true value of your business is assigning an opinion of value. Together, these steps make up the professional business valuation, which includes data collected for the financial recasting, as well as other factors that impact true business value (such as holdings, real estate, intellectual and proprietary properties, charitable standing, patents, established business history, comparative standing with competitors, and assets and liabilities).

A professional business valuation looks at all the factors that impact the true value of a business and utilizes proven methods to determine real value. This can benefit the business owner in day-to-day business, assessing how to implement new strategies, evaluating new methods to optimize efficiency, and improve earning potential. Through this process, the business is scrutinized in search of line items that should be cut or changed.

While obtaining a professional business valuation for your business is essential when considering the sale of your business, each business owner should complete an annual valuation to ensure all management decisions are made with the fair market value in mind. The valuation establishes an objective and true value that is not impacted by emotion or sentiment, thereby creating a strong position in negotiations with prospective buyers and internal management teams.

Getting a company’s financials professionally recast is a helpful part of that process, allowing you to understand the real picture of your company’s financials as well as information related to the final true business valuation. The true business valuation will clearly outline the different factors of your business and how they directly correlate to your company’s true value in the marketplace.

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