Business valuation is the process of determining a company’s worth. It plays a very important role in mergers and acquisitions (M&A). Whether a company is being sold, bought, or merged with another, the role of business valuation helps both sides understand the true value of the business and make smart decisions. At JAKS, we offer trusted business valuation services in the UAE. Our team gives you a clear idea of your business worth so you can make smart and confident decisions.
Let’s look at business valuation and how it helps during M&A deals.
What Is Business Valuation?
Business valuation is a way to check the worth of a company. It looks at many things like:
- Financial records (income, expenses, profits)
- What the business owns (assets)
- What it owes (debts)
- The market condition
- Plans and expected growth
It’s not only about money or numbers. Some things like the company’s brand, customer trust, and reputation also matter. For example, a company with a well-known brand and loyal customers might be worth more than one with just good profits.
This process is very useful when two businesses are joining (merging) or when one is buying another (acquisition). Business valuation helps both sides agree on a fair price.
Why Business Valuation Matters in M&A
Business valuation plays a key role in M&A for several reasons:
- Fair Pricing: It helps the buyer and seller understand what the business is worth. This avoids overpaying or underselling.
- Better Decisions: Valuation gives a clear picture of the company’s health. It helps buyers know what they are getting into and helps sellers prepare their business for sale.
- Negotiation Help: During talks and deals, having a trusted value makes it easier to agree and move forward.
- Attracting Investors: A clear and correct valuation can make investors more confident about the deal.
- Legal and Tax Reasons: Business valuation is also needed for legal records and to follow tax rules during M&A.
How to Value a Business in M&A
Finding the value of a business takes a few simple steps. Here’s how it usually works:
1. Collect Details
Start by gathering important documents. These include:
- Balance sheets and profit/loss statements
- Tax returns
- Details of assets (like buildings, machines, stock)
- Information about customers and suppliers
- Market trends and industry reports
2. Pick a Valuation Method
There are different ways to calculate business value. Some common methods include:
- Income Approach: This approach considers the amount of money the business makes and the amount it may earn in the future.
- Asset-Based Approach: Focuses on what the business owns minus what it owes.
- Market Approach: Compares the business with other similar companies that have sold recently.
The best method depends on the type of business and what details are available.
3. Review Financial Records
Check how the business is performing. Look at:
- Earnings and expenses
- Cash flow (money coming in and going out)
- Unusual items (like one-time big purchases or earnings)
This gives a clear idea of the company’s real financial strength.
4. Check the Market
Look at the bigger picture:
- What’s happening in the industry?
- Are similar businesses doing well?
- How much can the business grow in the future?
- This step helps find the company’s potential.
5. Calculate the Value
Use the chosen method to do the math. Some people use software or financial experts to ensure accurate results. It’s also a good idea to try different scenarios to see how small changes can affect the value.
6. Explain the Value Clearly
Once the value is found, explain it in simple words. This will help both sides understand the results and proceed to the next steps.
Business valuation is not just about numbers on paper. It’s a smart tool that helps people make confident decisions during mergers and acquisitions. A good valuation shows a business’s real worth, finds hidden risks, and builds trust between the buyer and seller.
For any company considering an M&A deal, getting a proper business valuation is the first step in the right direction. It can help avoid costly mistakes and lead to a successful deal for both sides. JAKS is a trusted consulting firm based in Dubai. We are here to make managing your business finances easy. We offer business valuation services to help you understand your company’s worth. Our services also include bookkeeping, VAT filing, payroll, and monthly financial reporting—everything you need to manage your finances.
At JAKS, we take your financial data seriously and work hard to make things simple and stress-free. Need expert support or business valuation services in Dubai? Call us at +971 503372712 or email [email protected] — we’re always ready to help!
