The business valuation report is a type of valuation analysis intended to estimate the approximate market value of a target company. It is used by investors looking to put money into new projects. It’s used by companies hoping to merge with or acquire others. The business valuation report is one of the most recognized tools in the due diligence toolbox.
Having said that, there is more than one kind of business valuation report. According to Mezy, a Utah company that offers due diligence-as-a-service (DaaS), a lot of people new to the due diligence concept believe that valuation reports are static. They are not.
First of all, there are different types of valuation reports prepared for different types of projects. Second, the data contained in a report is often specific to that opportunity. In the end, the people and organizations that order such reports have their own goals in mind. Reports are tailored to those goals.
The Startup Report
Mezy offers a business valuation report for startups. It is intended for venture capitalists and angel investors looking to help startups secure first- and second-round funding. It can be either a brief report or one that goes into great detail, depending on the startup in question.
Startup reports are especially important for the simple fact that new companies do not have a lot of history behind them. Due diligence providers try to zero-in on the most relevant data to help investors figure out where a particular opportunity stands.
The Summary Report
Another type of business valuation report is the summary report. Rather than offering page after page of company financial information, a summary report provides a snapshot in a single-page presentation. This report is the perfect tool for filtering out unwanted opportunities.
Summary reports are often dismissed as not providing enough information. While it is true that they don’t give you as much as a detailed report does, the summary approach can prove valuable to saving time and preventing wasted efforts.
The Comprehensive Report
What most people understand as a business valuation report is the comprehensive report prepared during the later stages of due diligence. This type of report is common for mergers and acquisitions. It is appropriate for late series funding rounds when companies are looking for that final push to get over the finish line.
As the name implies, a comprehensive report goes into great detail. It looks at past financial performance covering everything from balance sheets to annual growth. It looks at where a company is now, commensurate with its past performance and the market in which it is engaged. It also looks to the future.
It is the future aspect that gives due diligence providers greatest pause when compiling comprehensive business valuation reports. No one can accurately predict the future with 100% certainty. Neither can a business valuation report, no matter how many computer algorithms were utilized to create it.
Critical to Due Diligence
It’s safe to say that business valuation reports, in their many iterations, are critical to due diligence. Investors and companies alike need to know what a target’s real market value is before deciding whether or not to move forward. Without the data a valuation report provides, making any sort of decision is like flying blind.
Just remember that there is more than one kind of business valuation report. Business valuation itself is not an exact science. Nor is it static. Business valuation reports differ because targets and goals differ. Keep that in mind and you will be better prepared to determine what kind of valuation is most appropriate to every project you approach.