Refer to article attached, which refers to Malaysian SME’s and mainly relates to poor understanding of how to value IP and intangibles, an extremely tricky part of the valuation exercise, and one that not only affects SMEs but larger businesses as well as the general accounting profession and professional investors.
For me, it reminds me to make a note of other issues related to small business valuations, and how SMEs use the valuations to attract investment, obtain debt or sell the business.
Generally, a company will be valued based on the expected future cash flows of a business, which are often assessed in a discounted cash flow or net present value model, or more easily abbreviated and understood in a price-earnings model (a reference to how many years of earnings an investor is willing to pay to buy the business ), these can then be modified for assets held in the company if necessary. Valuations of IP or intangibles are just the same by the way – an estimate is made of what future cashflows they can bring to the business.
Still, in my experience most business owners wildly overestimate the value of their business and therefore what they think it is worth and what they think they can sell it for. This is one of the first issues we look at when discussing the sale of a business and one of the most difficult to approach given different valuations. This is why we like to start early when a sale of the business is expected, to give time to make the business more valuable, to dress the financials and business for sale and to start to prepare all the necessary documents and ensure that any potential issues are fixed. Give us a call if you are thinking of selling at some point, we can provide a free consultation, gain a rough idea of what your business could be worth and what we could do to help it be worth more.
https://www.digitalnewsasia.com/digital-economy/smes-in-malaysia-may-be-missing-out-on-funding-acca
SME News Asia
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