Understanding Business Valuation in Singapore: Tips and Strategies for Success

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From a financial standpoint, every business has some degree of economic value. Well, business valuation is a process of determining the worth of a business in monetary terms. It is a complex analytical process relying on several inputs, including estimations, projections, calculations, and refined judgments. The ultimate aim of business valuation is to get a fair and accurate value for a business. The methods of business valuation are typically based on similar principles of financial analysis throughout the world, however, business valuation in Singapore has some differences in practice. In this article, we will analyze the main principles of business valuation in Singapore.


Singapore and business valuation

To start with, let us briefly discuss Singapore as a business location. As one of Asia's top economies, Singapore ranks as the world's largest per capita income country and has been chosen as a financial hub of the region. It is economically sound, stable, and well-governed by the robust economic policies of the country. As a result, numerous companies and business players flocked to the country in search of business opportunities.

While business valuation is a common practice in Singapore, and thus, there are many strategies and methods of business valuation. Similar to any other country, Singapore's business valuation practice also has its own set of criteria and principles. Therefore, it is necessary to look into the.


Singapore: A business location in Asia

In the Asian context, Singapore can be considered a top-tier business location. It is an important financial hub and a gateway to the booming Southeast Asian economy. Singapore is an attractive country that attracts numerous businesses and business players. Many companies, especially those from the United States and Europe, choose to establish a business presence in Singapore. Although, due to the pandemic, there was an economic downturn in 2022, however, the economy is still healthy and stable. While in the year 2023, it is expected to rebound to a high level. The Ministry of Trade and Industry (MTI) forecasts that in 2023, the gross domestic product (GDP) would increase by 0.5% to 2.5%.


Why do business players choose Singapore?

Singapore is an ideal business location because of its productive and competitive workforce, clear laws, solid international ties, business-friendly atmosphere, remarkable infrastructure support, tax advantages, and sound corporate regulatory framework. Top American companies, including Abbott Laboratories, Medtronic, Boston Scientific, Stryker Corporation, and 3M, have successfully established their businesses in Singapore.

This is a testament to the fact that Singapore is a hub of business and trade. Therefore, business players from all over the world choose to do business in Singapore. Before we proceed with a business valuation in Singapore, it is necessary to understand the overall concept of business valuation. The following section will elaborate on business valuation in general.


What is a business valuation?

In general, business valuation is a systematic process of estimating the value of a business. It is based on various factors such as market conditions, financial records, profitability, industry trends, future expectations, competitors' valuations, and so forth. Using various standardized methods of business valuation, companies can determine the fair price of their business.

Business valuation is an essential process and is foundational to any successful business transaction. It is usually necessary for matters including merger and acquisition, lending from banks, or financing from investors or equity firms. Thus, every company needs to have a thorough understanding of business valuation.


Importance of business valuation

A business valuation is important when determining a company's worth. From financial deals or transactions to the company's decision-making process, business valuation is important in every aspect of a company's life. Here are a few reasons that describe why business valuation is important:

1. Mergers and acquisition (M&A) - In M&A, business valuation is one of the essential components to determine a fair price for a deal. As part of the due diligence procedure, business valuations are usually necessary during M7A. Businesses must do a thorough evaluation of their companies to verify that a merger or acquisition is beneficial to all parties involved.

2. To secure funding - A company needs to conduct a business valuation to have access to proper funding. Typically, potential investors or equity firms will require that the company must produce its business valuation report. A company must have a good understanding of how to accurately and fairly value its business to attract potential investors.

3. Financial reporting - Under Singapore's Financial Reporting Standards (FRS), companies are required to submit an annual report to the Accounting and Corporate Regulatory Authority  (ACRA) that includes their financial statements. A business valuation report needs to be included in the yearly financial statement and submitted to ACRA. In this regard, business valuation is an essential part of financial reporting.

4. For taxation purposes - With the help of business valuation, companies can get a clearer picture in terms of tax liability. In essence, taxes are calculated and paid regularly depending on the business's valuation. As a result, for the necessary taxes to be paid, a business valuation report must be created and submitted to the relevant government agencies.

5. Restructuring the corporation - Reorganizing or rebuilding a corporation may require a business valuation report. Businesses oftentimes alter their organizational structure when going through a corporate restructuring process. Therefore, it is necessary to examine a company's operating performance, financial records, and value of the company to make necessary changes in business structure.


What are the factors that affect the value of a business?

Multiple factors affect the valuation of a business. Some of the common factors that affect the value of a company are:

1. The stage of the business - Valuation models can be different based on the stage of a company's life. The way startups are valued is different from that of mature businesses. To accurately value a company, it must be viewed in the context of its stage of life.

2. The level of earnings - The past earnings of a company will greatly affect the estimation of its present value. Many businesses are valued based on their historical performance as well as the projected future earnings.

3. Concentration in the industry - Businesses with a specific industry orientation tend to be more volatile. The fact that the market is constantly changing, can influence the valuation of businesses within the same industry.

4. Depending on the management - A company's management team may have a huge impact on the value of the company. Therefore, it is essential to determine if the founding team is capable of managing a business and achieving growth potential.

5. Forecasting and projections - To create a proper business valuation, it is essential to make forecasts and projections. A company's future outlook will greatly determine the value of its business.


Business valuation in Singapore

Now that you know about business valuation, you may be wondering how business valuation works in Singapore. The process of business in Singapore is carried out on the same principles regardless of the method that is used. By proper use of business valuation, a company can gain valuable information and make better decisions about the growth of its business. While the most commonly used valuation methods in Singapore are income-based, asset-based, and market-based. What are these methods and how do they work? The following sections will give you a more in-depth analysis.


Business valuation methods

Here are the common business valuation methods in Singapore:

1. Income-based valuation method - The income-based valuation method is also known as the discounted cash flow (DCF) method. To conduct business valuation using this method, it is necessary to make assumptions about a company's future cash flow. Typically, future cash flows for five years are estimated based on various factors, and then they are discounted to the present value using fair discount rates. As a result, the present value also referred to as terminal value, is used to calculate the value of the business.

2. Asset-based valuation method - It is considered the most simple method of business valuation. The key components behind this method are assets and liabilities. The net asset value of a business is computed by adding all the tangible assets such as inventory or property with intangible assets such as goodwill or trademarks. Further, the net asset value is subtracted from the total liabilities of a business to derive its worth. Hence, the value of the business is calculated based on the net asset value of a company.

3. Market-based valuation method - This method takes into consideration similar companies operating within the same industry. The industry, size, market capitalization, and other characteristics are considered when choosing that company's peer group. Based on the market value of those similar companies, the valuation of the company in question will be determined. It is essential to note that this technique is therefore helpful only when comparables are available and a comparable transaction has already occurred.


What are the tips and strategies to make business valuation a success?

Business valuation is only useful if the process is done in the right way. That being said, it is essential to keep in mind some simple strategies to ensure that business valuation in Singapore is done properly. Here are a few tips that will help you out:

1. Have an accurate knowledge of your company - If you have an accurate and detailed understanding of your company, then it will be easier for you to identify any errors or information gaps in business valuation. As a result, it will allow you to conduct business valuation in Singapore more systematically and accurately.

2. Understand the discounts and multiples - A good way to value a business in Singapore is through the use of multiples or discounts. Revenue multiple, EBITDA multiple, or discounted cash flow are some of the most commonly used discounts and multiples. In this case, you need to understand their respective equations and the meaning of each factor.

3. Consider all methods of valuation - If you want to know the value of a company, you must consider multiple valuation techniques. All methods have their benefits and drawbacks. Likewise, by considering multiple methods of valuation, it is possible to get a more comprehensive view of the business valuation in Singapore.

4. Conduct due diligence - To conduct a successful business valuation in Singapore, it is essential to conduct thorough market research. The process of conducting due diligence will include observing the company's prospects, analyzing its present financials, and even observing the company's competitors.

5. Use professional expertise - To carry out business valuation in Singapore, it is highly recommended that you consult with a professional agency like Eqvista. In this way, professionals will be able to help you to define a methodology, collect data and information, conduct business valuation in Singapore, and come up with a trustworthy result.


Conclusion

Throughout this article, you got to learn the concept of business valuation in Singapore. However, you might have noticed that various considerations, methods, and strategies are essential for business valuation in Singapore. So, why not hire a third-party agency like Eqvista to conduct business valuation in Singapore? Eqvista offers accurate, comprehensive, reliable, and professional business valuation services. With the necessary tools and software, we can help you to achieve your business valuation goals. What are you waiting for, then? Seek expert advice from Eqvista today and avail the benefits of our services!

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