How To Assert The Valuation Of a Company?

Posted by Venture Care on January 22nd, 2020

Asserting the value of a company is a crucial business activity. The qualified personnel who do this arduous task are valuers. They undertake this task for both start-ups as well as established companies. They have extensive experience to judge the merits and demerits of mergers and acquisitions (M&A) by valuing a company. Here is everything you need to know about valuing a company.

India and company valuations

Globally, there are many standards for valuing a company. They are localized mainly to the commercial environments of the USA, Canada, and Europe. These standards are more like guidelines and recommendations. There are no hard and fixed rules to guide the process of valuation.

In India, we have a highly respected ICAI Valuation Standard or ICAI. This organization sets the principles, concepts, and procedures related to accounting. Their recommendations agree with the legal and practical aspects of a business. The lack of regulatory authority is a source of great concern in India. This lacuna gets amplified when actual valuation starts. The main controversy stems from a lack of consensus. The industry giants do not seem to agree on one aspect. Is valuation an art, or is it a science?

Litigation

Mergers and acquisitions in India get embroiled in various litigations. These litigations happen as valuation involves a considerable amount of subjectivity. The valuer’s principles, learning, and ethics kick in, and they create some doubt. The absence of regulatory standards also creates a lot of confusion.

The valuations of an unlisted and private company are another subject of controversy. There is no single, uniform, and unified approach to assessment. The valuers do not adhere to any specific set of international guidelines either. So, the interested parties go to the courts for proper resolution. Are you on the verge of litigation that might get to court? Visit business startup consultants to get legal services from experts.

Business Value Practice Standards

The ICAI has recently come up with a meaningful solution. They have proposed BVPS or business valuation practice standards. The institution understood a very significant point in the world of finance. The word value means different things to different people and context is all-important.

The primary purpose of BVPS is to guide the valuers in their profession. These standards define the general valuation concepts and principles. They also take various practices, procedures, and approaches into consideration. And finally, a code of conduct has been provided to act as a guiding light.

The main objective of ICAI has been to evolve common standards. All types of evaluations are taken into account to avoid conflict. Moreover, a pragmatic and wise approach has been made and advocated to avoid litigations. These standards aim for improvements in best valuation practices.

What to do and what to avoid?

We now know that there is no one way to assess a company or process. But, there are a few rules that will help you get an unbiased output out of the valuation process. Here is everything that a valuer, company shareholder, and others should consider while valuing an entity.

One crucial factor ignored by valuers is standardization. The valuation process will have the edge if the companies follow the above-mentioned ICAI standards. Also, the international standards of AICPA, ASA, IBA, etc., should be followed. This combination will give the valuer a competitive edge.

• Do not get bogged down by multiple, conflicting standards. The reputed institutions and associations always propose clear cut rules. They mention the purpose, objective and scope of their standards. Besides, they also clarify any valid exceptions. Valuers who understand these norms can assert with confidence.
• In a financial transaction, engagement is a crucial component. Valuers who understand the terms, nature, and risks are bound to shine. They do not make any meaningless conclusions of their own. They avoid subjectivity and follow all the limiting constraints. This clarity helps to avoid litigation.
• Valuation is not just about risk avoidance and litigation. It also has positive sides, such as business expansion and client satisfaction. The valuers who work without any pre-set agenda or prejudice will succeed. They will focus on the pros of development standards instead of the cons.
• The technical aspects should also be flawless. The fundamental valuations involving assets and incomes should be up-to-date. A more relative market approach is always better.
• Perspective is very important for any small or big valuer. Stakeholders like entrepreneurs and investors have conflicting interests. 

Do you want an unbiased valuation process by the experts? You should follow the steps of leaders in the field. Visit the business valuation company to know the standard business valuation process in India and get started on the procedure.