Last Updated on December 13, 2022 by Anda Malescu
Business valuation software is used to assist in the process of determining the economic value of a company. Business valuations can be performed for a variety of reasons, including to evaluate potential transactions, for tax purposes or to attract financing. There would be various requirements for accuracy of the valuation, depending on its purpose. Business valuation software can be used to gain a rough estimate that can be used as a basis of negotiations in business sale or purchase or to attract equity investment. However, as the requirements for accuracy increase, the business valuation software can not be used as a standalone tool but rather it should be integrated into whole business valuation process by a certified professional. To examine the usefulness of business valuation software, we have examined several better-known products below.
ValueAdder – is considered useful to both business owners and valuation professionals. The software is not web-based and needs to be downloaded and installed on a computer. According to the developer, it can be used for different valuation purposes. It features a business sales comps tool, earnings multiple tool, business goodwill tool and a discounted cash flow tool. The business sales comps tool uses statistically derived multiples from comparable business transactions by sector. However, the developer does not mention which database is used and how recently it has been updated. The earnings multiple tool uses the sensitivity of both financial and operational factors, such as discretionary earnings, industry growth and customer concentration, to estimate the value of the business. The business goodwill tool uses the sum of net tangible assets and capitalized excess earnings to estimate the business value. Discounted cash flow tool uses earnings forecast and a discount rate provided by the user to estimate the present value of future cash flows.
MoneySoft offers business valuation software that allows the user to choose the business valuation methods and approaches that he/she deems appropriate and assigns a weight for each method. There are several methods for each of the three valuation approaches (asset-based, income-based, and market-based). According to MoneySoft, the software includes the following valuation methods: net asset value, liquidation value, capitalization of earnings, capitalization of excess earnings, multiple of discretionary earnings, discounted cash flow and price multiples from sales of comparable.
Smergers provides a simple business valuation calculator on its website. It requires only a few inputs and simple to use. It is too simplistic, it only uses EV/EBITDA and EV/SALES multiples derived from Investopedia as a source. These are likely wrong every time as almost every business has unique characteristics and circumstances. We would not recommend such a simple business valuation software even as a starting point as it is likely to be grossly misleading.
BizPricer business valuation software can be used to estimate the value of a company based on free cash flow analysis. It uses a multi-staged process that incorporates adjustments for risk factors and goodwill. Bizpricer requires a lot of inputs from the user. Some are simpler, such as revenue and cost of sales. Other are risk-factor multipliers to account for perceived risks such industry exposure. Since BizPlacer does not have a database with these risk factors these are solely based on the judgment of the user, making the software more suitable for use by professional valuation specialists.
The few products that we have examined show that there are some products intended to assist seasoned valuation professionals, which would be useless in the wrong hands. There are also products intended for a quick check online, which are useless due to their oversimplicity. Some business valuation software products are more balanced but may lack flexibility to account for the unique circumstances of a business. Overall, a business valuation software is just a tool and in the hands of an experienced valuation professional can speed up the process, but ultimately the knowledge lays within the person not the software.
Contact us or schedule a consultation with your business attorney in Miami, Florida USA if you need advice on retaining a suitable business valuation services firm.
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