Choosing a valuation method starts with the source of the business's economic value. A stable service company may depend on recurring contracts and staff expertise, while a property vehicle may depend largely on its assets. A method should fit those characteristics and the purpose of the exercise. Using several approaches can expose weak assumptions; averaging incompatible answers merely conceals them.
A cash flow approach examines money the business may generate after the investment and working capital needed to operate. Build forecasts from customer demand, capacity, margins and collection patterns. The discount rate and terminal assumptions need explanation, particularly when an overseas investor brings expectations from another market. A forecast of profit alone does not describe cash available to capital providers.
Market comparisons use evidence from relevant transactions or quoted businesses. Check activity, size, geography, growth, customer concentration and the definition of the financial metric. A multiple applied to reported EBITDA can mislead if comparable companies use different leases, owner remuneration or accounting policies. Record the evidence date and distinguish an advertised asking price from a completed transaction price.
An asset approach reviews the value of identifiable assets and obligations. Accounting net assets provide a starting reconciliation rather than an automatic market valuation. Examine recoverability of receivables, obsolete stock, property restrictions and liabilities outside routine trade balances. For a business dependent on its founder's relationships, asset values may explain little of its trading potential or the cost of replacing those relationships.
In a hypothetical case, an engineering consultancy owns little equipment but has several renewable maintenance contracts. An asset calculation looks modest; a cash flow model reflects the contracts, staffing costs and renewal risk. A market comparison is informative only after adjusting for the consultancy's unusually high dependence on one client. The difference between results becomes a question to investigate.
Prepare recent accounts, management reports, contract information, a debt schedule, investment requirements and the assumptions supporting forecasts. Explain why a method receives greater weight and show sensitivity to uncertain inputs. Spanish accounting and company legislation frame the records and corporate context, but they do not validate an unsupported commercial assumption. Before commissioning a report, consider discussing the intended decision and available evidence at info@taxdevelopmentconsulting.com.