What is a Calculation Report?
As a business owner, having an understanding of your business’s value is crucial for making wise decisions. A calculation report is a semi-formal business valuation for business owners and sellers. Various methods are used when calculating data, but calculation reports do not consider key factors, such as a business’s financials, market conditions, or other critical factors. By nature, a calculation report is less detailed than a full business valuation report.
The main benefits of a calculation report are that it follows a clear process, is faster, and has a lower price. Because of this, a calculation report can be a great option for busy business owners. Moreover, it is important to note that calculation reports are less detailed and accurate, as they provide a rough estimate of value. In this article, we look at what a calculation report includes and why it is important, as well as explore the benefits of a full business appraisal.
Peak Business Valuation, business appraiser, values businesses throughout the United States. We are happy to provide you with a business valuation for selling, buying, legal matters, or tax reporting. If you have questions about the valuation process, schedule a free consultation with one of our business appraisers today!
Why Are Calculation Reports Important?
Calculation reports are very useful if you need a quick estimate of value at a lower cost. These reports also show the steps taken to reach a final value, which helps business owners, investors, or buyers understand the value of the business. In many ways, a calculation report is the bare bones of a full business valuation, offering key data without delving into much detail.
Common uses for calculator reports:
- When a business owner is planning to sell their company.
- When a buyer wants to know if a business is worth the asking price.
- When investors want to ensure the business is a good investment.
What Does a Calculation Report Include?
Below is a list to help you visualize what a calculaton report looks like:
1. Title Page:
The title page shows the report’s name, the name of the business being valued, the date, and who prepared the report. The person conducting the report could be an analyst or certified business appraiser.
2. Purpose of the Report:
This section explains why the report was prepared, such as to sell the business or attract investors.
3. Scope of the Report:
The scope explains that this is a calculation engagement, meaning the value is based on selected methods and limited analysis.
4. Standard of Value:
The standard of value establishes the type of value being calculated, which is often the fair market value of the business.
5. Valuation Date:
This shows the date the business was valued. Business value can change over time, so tracking the date is important. See Why a Valuation Date Matters.
6. Business Overview:
The overview is a short summary of the business, what it does, and how it operates.
7. Financial Information:
Financial information includes financial statements and key numbers used in the valuation.
8. Valuation Methods Used:
Like full business appraisals, calculation reports use various valuation methods. The methods used to calculate value are the income, market, and asset approaches. To learn more, see Methods to Value a Business.
9. Calculations and Results:
This section shows the formulas used and steps taken to reach the final value.
10. Assumptions and Limitations:
The assumptions and limitations section provides any assumptions made and what information was not included in the report.
11. Conclusion:
Finally, the conclusion of the calculation report shares the estimated value of the business.
Calculation reports can be very useful for making quick decisions when you only need general value estimates. However, a more detailed report is often ideal. Peak Business Valuation is a trusted business appraiser. Our team can give you a detailed analysis of your business’s value for important decisions that require precise data. Schedule a free consultation today to learn more!
When Should You Use a Calculation Report?
The choice to receive a calculation report depends on your needs. Some business owners obtain a calculation report to learn if selling or buying would be worth pursuing before going on the market. Others prefer to use calculation reports to aid internal decisions like assessing performance or tracking growth. Ultimately, a calculation report can be a great stepping stone to prepare for bigger business decisions.
Why a Full Business Appraisal Might Be Better
While calculation reports are helpful in many situations, they are not always the best option. In some cases, it is better to get a professional business appraisal.
Here are common reasons a full business appraisal may be a better fit:
1. More Reliable and Detailed:
A full business appraisal includes a deeper analysis. Business appraisers assess more documents, make a detailed valuation plan, and consider factors like market conditions and industry changes that can affect value. This leads to a more accurate and reliable estimate.
2. Independent and Unbiased:
In a calculation report, the business appraiser and client agree on which methods to use. In a full business appraisal, the valuation expert determines the most applicable methods on their own. This makes it more independent and objective.
3. Better for Legal and IRS Use:
For tax reporting or legal disputes, a full business appraisal is required. Business valuations meet higher professional standards and can stand up to more scrutiny.
4. Stronger Support for Loans or Investors:
Banks, lenders, and investors often require a full business valuation before making decisions. Obtaining a business valuation can support any financial requests with confidence. For additional information about working with lenders like the SBA, see SBA Business Valuations.
5. Useful for Long-Term Planning:
If you are planning to pass your business to family, bring in partners, or prepare for future growth, a full business appraisal gives a stronger foundation. It can give any future owners a stronger foundation on which to build.
Conclusion
In summary, a calculation report has its advantages and disadvantages. If you need a quick, cost-effective solution for smaller decisions, a calculation report may be the best option. Calculation reports follow general valuation guidelines by using selected valuation methods and assessing general financial data. In contrast, a full business valuation is a more detailed, accurate, and formal assessment that is ideal in different scenarios.
If you are unsure which valuation assessment is best for you, speak with a valuation professional at Peak Business Valuation. Our business appraisers can provide guidance and help you choose the best option during a free consultation. In addition, we can answer any questions you have about valuing a business. Schedule your free consultation today!
