Conducting Business Valuation Exercise During Unprecedented Pandemic Times A Wise Move

Sr. Kit Au-Yong is a Registered Valuer, Appraiser, Estate Agent and Property Manager registered with the Board of Valuers, Appraisers, Estate Agents and Property Managers Malaysia (BOVEAP). He currently oversees a boutique property consultancy firm named Asiacap Valuers & Property Consultants Sdn Bhd.

Businesses are very dynamic entities. The market environment has great bearing towards profit-oriented organisations. The current unprecedented pandemic will surely have an effect as to how companies perform and this will affect the value of companies.
Thus, if anyone would like to know the company’s value, it is more so important to ensure that the market value is current. While most businesses are badly affected by the pandemic lockdown – there are some quarters which have positively benefitted from it.
In view of the current lacklustre economic climate given the Covid-19 pandemic, here’re some case scenarios in which business owners will do well to assess the market value of their firms.
Public-listed companies that are listed with BURSA Malaysia come with listing status while their stocks and share prices, being determined by the market place, is tradable by anyone. On the other hand, non public-listed firms are represented by medium-size or Small and Medium-sized Enterprises (SMEs) with various ranges of revenue and profit levels.
The essential question here is why is it vital to know one’s firm value? And, when do you need to do a business valuation exercise?
Obviously, some situations are critically essential to have a valuation done given the reasons below. Furthermore, given the current ongoing pandemic, here are top five situations outlining why valuing one’s business market value is key to survival as well as to navigate the current storm.

1. Acquisition and disposal of share interest
Whenever a firm is met with such a situation, both parties comprising potential purchaser and the business owner, need to determine a fair consideration for the exchange of value. This is no different from a typical transaction of the price for a property in which a Registered Valuer would conduct a valuation exercise to derive the market value for the consideration of both parties to negotiate and eventually complete the transaction.
In business, there are more metrics and parametres to consider when deriving a fair market value, which makes it much more complex – unlike when dealing with real estate valuation.
2. Fair market value in financial reporting
Sometimes, companies invest in another company as a subsidiary or associate company. It is then wise to have a Fair Value of the company’s interest reflected in its balance sheet.
3. A split of assets / exit of partnership / new partner joining
In many companies’ enterprising journey, there will come a juncture whereby the above situation may occur. Thus, it is only fair to have an objective-driven valuation done to ensure all of them are well compensated.

4. Development of the business                                                                                  An excellent overall measure of a business is when the company increases its market value over time. So sometimes, a business valuer can work hand-inhand with the business owner to review and advise him or her to focus on the area that can increase the firm’s value.
At the same time, many business owners are too engrossed with their operations while not being able to kind of raise themselves to look at the bigger picture. For example, the large sales volume of a firm may not be the best of value for the firm because of many other considerations such as return of margins and return on equity, days of sales, stock turnover, and etc.
5. Raising of funds
Some companies may need to raise funds from others when they see the potential of growth for their business while facing capital resource limitation.
Incoming funders will definitely need to assess the business in terms of its potential of return, ability to generate profit, and market value at that point in time.
The above are some situations that may require the service of a business valuer. There are some even more unique situations that will require a business valuation.

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