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Understanding the Importance of Business Valuation for Companies in Singapore

Business valuation refers to the process of assessing the worth of a business/ company, its ownership interest or a particular asset or liability of the business, by present or future potential. Valuation is a complex process that requires a thorough understanding of the business, industry, and market in which the company operates as each market and industry are different and every business/ company has its own unique strategy, objective and business model. Business valuation is often used as a critical component in the decision-making processes given the importance of business valuation for companies.

The process of a business valuation is usually carried out based on historical and projected financials, past and future market assessments, analysis of the comparable companies and company’s operations and other relevant quantitative data and qualitative information in arriving at a fair and reasonable valuation. As the dynamic and competitive business environment that is constantly evolving in Singapore, the ways companies in Singapore are valued are also evolving and getting more complicated.

Singapore has been a leading country of choice when it comes to doing business internationally.  It is also called the “Lion City” which has a strong currency and infrastructure which in turn makes it the best place to set up an overseas corporation in it. The country provides a very business friendly environment for new entrepreneurs and it has the most stable political environment in South-East Asia. According to the source from Global Innovation Index, Innovation Trends and Report 2022, Singapore is ranked the second as the leading innovation centre in Asia after South Korea as Singapore works with companies to develop solutions to solve the world’s most pressing problems. It is also consistently ranked as one of the world’s best places to do business as it drains companies and professionals from all over the world to eagerly work and do business in Singapore.

Similar to those of other countries, there is no major difference in the process and purpose of performing business valuation in Singapore. The core principles of valuation models remain the same although the models have evolved to align with latest business strategies and economic activities.

Business valuation is an important aspect of investor and corporate activities in the financial markets. Many believe that business valuation is only necessary when there is a transaction, but it is not the case always. There are many advantages to conducting a valuation of a business, be it at current or for future. No doubt that business valuation is essential to determine a reasonable price in a transaction regardless from the point of view of a seller or buyer, it is also important for business enhancement or expansion planning, exit or succession planning, pre-sale or acquisition planning.

Understanding the value of a business is critical to make better informed, strategic business decisions. Such an exercise can help to identify and understand the critical value drivers influencing business success so that the necessary action can be taken to maximise the value of a business. In addition, business valuation is also used for various purposes such as tax planning and reporting, financial reporting, litigation and arbitration, corporate restructuring, funding, investor reporting, initial public offering and any other purposes. Financial reporting includes activities such as goodwill identification and measurement, goodwill impairment testing, purchase price allocation, portfolio valuation, etc. whilst litigation and arbitration includes activities such as shareholder disputes, bankruptcies, damage assessment, purchase of majority and minority shares, etc.

Regardless of what purposes a business valuation is performed for, it is important for the users to determine what the company wishes to achieve with the valuation. Given the importance of a business valuation to the business users in making informed and strategic decisions, it is critical for the company to be able to provide relevant and quality information for use in the business valuation process. Appointing an experienced and independent business valuer with in-depth understanding of the industry and knowledge of valuations will ensure a robust and defensible exercise to value the company/ business given the subjectivity involved and the assumptions and judgements required in a valuation exercise.

Business valuation services in Singapore are important for various kinds of companies/ businesses and having a business valuation to be performed at the right time can have a lot of advantages for the users in making important and informed decisions.