long term experience
Business appraisal: The cost of a real business
The appraisal of a business, which brings profit to the owner, is the complex cost decision of the company. When conducting experiments of appraisal, all the assets of the company are decided such as real estate, machines, devices, stock reservations, financial investments. The cost of non-material assets is also decided. Besides, the productivity of the company’s activity, its past, present, future expecting incomes, development perspectives as well as the competition environment in the market are separately appraised. Furthermore, comparison of the valued company is made with that of a similar one. Based on such a comprehensive analyses, the legal value of a business as an estate complex capable of bringing profit is decided.
The process of a business appraisal is based on principles of a certain appraisal which have been created in the result of local and foreign valuers’ yearly experience. These principles are the theoretical foundation of the appraisal.
All the principles are interlinked; however it is possible to divide them into several classes conditionally:
1.Principles based on owner’s (user) presentations.
2.The principle of usefulness states that the enterprise has a cost only in case it can be profitable to the owner, i.e it can satisfy the owner’s this or that demands.
3.The principle of expectation states that the business cost of the enterprise depends on profit resulting in the future exploitation of the enterprise.
4.The principle of replacement states that the maximum cost of the enterprise is decided
based on the minimal price that can be acquired another enterprise by an equivalent usefulness.
5. Principles based on the exploitation of the property.
6. The principle of the investment states that by investing a new factor the sum of increase of
the business cost should be more than the investment expenditures of that factor.
7.The principle of the remaining efficiency refers to the land where the enterprise is located, the part of the business income which goes with the other integrated resources such as with the payments of job, capital and enterprise.
8.The principle of the marginal productivity states that the profit from increasing other resources together with main factors of the production tends to increase faster than the growth of the expenditures, whereas to a certain point, although increasing, the total profit grows slowly till the increase of the cost hasn’t become lower than the expenditures spent on added resources.
9. The principle of equilibrium states that it is possible to get maximum revenue from the enterprise business by preserving the optimal values of all factors of the production.
10. Principles related with the market environment.
11. The principle of the correspondence states that for increasing maximally the business cost of the enterprise it should correspond to production overloading with market demands, the demands of the profitability, construction solutions, etc.
12. The principle of further processing states that the market cost of the enterprise business with extra improvements from the point of view of the market won’t influence most probably its real cost and on the expenditures spent for forming it.
13. The principle of the development assumes a possibility of the market price growth of the enterprise business in the result of the positive influence of the objects acting in the vicinity.
14. The principle of the competition concludes that the it brings to the decrease of the net revenues, therefore while predicting future revenues of the enterprise, competition should be considered by decrease of direct revenues or increase of the risk factor.
15. The principle of depending on the foreign environment is quite apparent, political,economic, social changes influence the market structure, the level of prices and accordingly, the cost of the business of the enterprise changes.
16. The principle of the change – the cost of the enterprise business changes during the time.
17. The principle of the economic division – in case of possibility the estate rights should be divided and joined in such a way that the general cost of the object increases.
18. The principle of the best and most productive usage – it is the search of the most reasonable and possible option of the enterprise usage which will provide its maximum cost.
The appraisal of the enterprise
As a rule a modern enterprise is quite a complex structure which integrates a large number of assets of different types, from real estate to business reputation. Thus, the appraisal of the business should be made based on all three methods: expenditure, income and comparative. The mentioned methods aren’t used separately, they are interlinked, i.e when appraising the business they tend to use simultaneously methods of different approaches. Moreover, each approach is based on usage of certain features of the enterprise which influence on the value of its cost.
The purposes of the business appraisal can be
- The increase of the productivity of the enterprise management
- The argumentation of the investment decision
- The working – out of a business plan
- The reformation of the enterprise (liquidation, rejoining, separation, etc.)
- The decision of the current market cost of the enterprise in cases of its partly or complete purchase and sale, leaving from one or several branches, etc.
- The decision of the value of the stocks of the enterprise, the shares in its capital when conducting different activities with them.
- In case of credit-capability of the enterprise and crediting the decision of the value of the mortgage cost.
- The market cost decision of the estate in case of conducting insurance activities.
- The taxing of the enterprise (it is necessary to make an objective appraisal of the enterprise when deciding the unit subject to taxation.
- The appraisal of the assets of the enterprise on the purpose of book keeping.
- The integration of the founders’ estate investments into the main capital.
- Purchase of the shares from the stock holders.
- The application of the court decisions on the occupation of the property.
- The decision of the value of the rental payment in case of renting out the business.
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