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 Many people, mainly businessmen, business partners, managers and people who work in the financial area, when they hear the term evaluation , immediately asssociate to calculations that will support the company's Purchase and Sale operations. These operations are known as M&A activities,  Merges and Acquisitions.

In these cases, on the one hand, sellers and on the other, buyers will seek an evaluation of what is in the sale process, or purchase process.

We will address in this short post:

What are the uses of Evaluation Calculation for your company?? 

Of course, both sides will seek to optimize their calculations, that means, sellers will seek the highest possible value, while buyers will seek the lowest value. The challenge is to close an operation where a value is reached to close the deal.

In the process of buying and selling complete companies, company segments, or even brands, on the one hand, sellers and buyers on the other hand must be well advised by specialized consultants.

EBITDA multiples

In M&A processes, in addition to a good evaluation, multiples of annual EBITDA are used as a complement. The question is how many multiples of EBITDA will a transaction be closed. Here again we have a dispute between Sellers and Buyers, where the former will seek the highest multiples and the buyers the lowest. When expectations are very different, negotiations often stop at this stage. For example: Seller expects to receive at least a multiple of 10 EBITDAS, while buyers offer 4. 

There are multiple factors that influence EBITDA multiples. Factors such as profitability, Sector, Business Life and Market practices influence the EBITDA multiples to be negotiated. This is yet another point where the advice of an M&A consultant is essential. But we will leave more details on this topic for future articles. 

But is an evaluation only necessary in processes of buying and selling companies?

The answer is no, as there are several other uses where having a good evaluation calculation is of great importance.

In fact, in addition to supporting the company's negotiation processes, evaluations are extremely useful in several other processes.

In my opinion, the commented use is not even the most important use of this calculation, although it is the most used.

Below I highlight some of the Uses of Evaluations

1- Support in the processes of Buying and Selling of companies;

2- Define the amount to be paid in the event of the departure of one of the partners in the case provided for in the contract;

3- Review amounts accounted for for the purpose of Impaiment Test

4- Support partners / owners in the case of admission to the business of investor partners

But in my opinion the most important and perhaps the least used concerns the following:

Most important use of evaluation calculations:

Positioning the Partners and Directors regarding the Value generated by the Business, that is, what was the generation of value that the business achieved up to the date of the Evaluation.

In this way, an evaluation carried out from time to time will give a good idea of ​​how much wealth the company's management is generating. In other words.

An evaluation serves to position the partners and owners about the effective contribution that the company's management is making in the sense of creating value by making the partners' investments grow or be destroyed.

Therefore, it is super important that entrepreneurs are aware of the value of their companies and know if the company creates and generates value or destroys the capital invested.

A reassessment every year ended is vitally important.

If you want a proposal to evaluate your business, whatever the purpose, I'll contact you.

I have a short evaluation modality that has a very attractive cost

55.11.97227.7471 Ari

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