International Journal of Finance and Accounting

p-ISSN: 2168-4812    e-ISSN: 2168-4820

2015;  4(2): 140-143


The Role of Business Valuation in Strategic Planning of Activity of the Company

Yuliia Sivitska

Consulting company "Forex", appraiser, Poltava, Ukraine

Correspondence to: Yuliia Sivitska, Consulting company "Forex", appraiser, Poltava, Ukraine.


Copyright © 2015 Scientific & Academic Publishing. All Rights Reserved.


This article examines the role of business valuation in long-term planning of activity of the company, contains analysis of the recent publications on strategic planning, the reasons and benefits that companies get from ordering of a business valuation and some specific business situations which may call for a formal valuation study. Business valuation helps chart the course of success, starting with the strengths and weaknesses of your organization, and determines the actions, which will help drive the enterprise value to where it should be tomorrow. The role of business valuation is determined as one of the main roles of strategic planning of activity of the company, because, all companies have limited resources, so strategic planning and task needs to be prioritized to ensure a methodical, realistic approach for company that wants to succeed.

Keywords: Business valuation, Strategic planning, Reasons for independent business valuation

Cite this paper: Yuliia Sivitska, The Role of Business Valuation in Strategic Planning of Activity of the Company, International Journal of Finance and Accounting , Vol. 4 No. 2, 2015, pp. 140-143. doi: 10.5923/j.ijfa.20150402.04.

1. Introduction

The contemporary development of methods of business valuation proceeds in the direction of satisfying the requirements of modern management. Today value management is one of the most popular concepts of the management philosophies.
The evaluation results of business obtained by analyzing the external and internal information are necessary not only for negotiating about buying and selling, they play a significant role in the selection of enterprise development strategies: in strategic planning, it is important to estimate future revenues of an enterprise, level of sustainability and value of the image; to substantiate investment projects for the acquisition and business development it is necessary to have information on the cost of an enterprise or part of its assets.

2. Analysis of Recent Researches and Publications

The authors of fundamental scientific works on strategic planning are A. Chandler, K. Andrews and I. Ansoff. In recent years, there has been a tendency abroad towards generalization and comprehension of the results of researches in the area of strategic planning and management. In connection with the above, we note, for example, scientific works of H. Mintzberg, and D. Alstrend Lempel.
It should be noted that scientific literature quite completely and describes the theoretical approaches to strategic planning. But the role of evaluation in long-term planning of the company is covered fragmentarily or even omitted from consideration. Implementation mechanisms of strategic planning, development and application is the matter of consulting companies which have little interest in public discussion of the results.

3. Problem Statement

At the contemporary stage, competition level in all areas of producing goods and service delivery is constantly increasing. Any company needs planning as a dynamic process, to anticipate and take into account environmental changes and adapt the internal production factors for its development and growth. Valuation of the company plays an important role in long-term planning of the company.

4. Purpose and Objectives of the Article

Purpose of this article is to identify and describe the role of business valuation in the long-term planning of activity of the company.

5. Basic Results of the Article

Strategic planning is a process that brings to life the mission and vision of an enterprise. A strategic plan, well crafted and of value, is driven from the top down; considers the internal and external environment around the business; is the work of managers of the business; and is communicated to all the business stakeholders, both inside and outside of the company. [3]
Many business owners believe that since their hand is on the pulse of the business, no surprises will come. Unfortunately, they are usually wrong. [13]
As a company grows and as the business environment becomes more complex the need for strategic planning becomes greater. There is a need for all people in the corporation to understand the direction and mission of the business. Companies consistently applying a disciplined approach to strategic planning are better prepared to evolve as the market changes and as different market segments require different needs for the products or services of the company. There is no unique formula or process for strategic planning. There are however, principles and required steps that optimize the value of strategic planning. [5]
The steps in the process described in this article on strategic planning are presented below (Figure 1):
Figure 1. The process of strategic planning
Business valuation is one of the main stages of strategic planning of the company. Based on the assessment of business value company management determines the content and sequence of the implementation of the most important events, makes decisions on complex problems of the company.
Strategic planning has become increasingly critical for small and mid-sized businesses, because economic trends have created a more competitive business environment. For companies that want to succeed, defining its direction is of utmost importance. [13]
When the time comes, the company’s principals, its counsel, or independent accountant should consider the advantages of an independent, professional appraisal by a specialist in the field of business valuation. Some specific business situations (described in the Table 1) which may call for a formal valuation study include:
Table 1. Reasons for independent business valuation
The following are the top reasons that companies benefit from having business valuation (you can see in the Figure 2):
1. Know what your company is worth. Many business owners have no idea what their business is worth; and if they think they know, they are probably wrong. Sentiment often gets in the way of good judgment. For a fair and independent opinion, CEOs and owners should obtain a professional business valuation.
2. Understand where your company fits in the landscape. A business valuation will research and provide an explanation of your specific industry and will place your company in the competitive landscape of your specialized market. It will also tell you the market price of publicly traded companies that are engaged in your line of business.
3. Learn the financial condition of your company. Business owners may think they understand the financial health of their company, however having an independent review and analysis including intangible assets can confirm or deny the theories.
4. Make fast decisions on buying, selling, and mergers. If you are faced with the option to buy, sell, or attract capital for your business, you may not have time to wait to have a business valuation completed. Having a current valuation will enable you to strike while the iron is hot.
5. Stay current. The market is in constant flux. It is important to get regular business valuations because your company, your industry and the economy are continually changing. A business valuation report, completed by an accredited valuation expert who is a member of a professional society working in compliance with established professional standards, may be appropriate for use in courts, for financing and for tax challenges as needed. [1]
Figure 2. Benefits which a company will receive from independent business valuation

6. Conclusions

Strategic planning or long-range planning, is a management-directed process that is intended to determine a desired future state for a business entity and to define overall strategies for accomplishing the desired state. Through planning, management decides what objectives to pursue during a future period, and what actions to undertake to achieve those objectives.
Successful business planning requires concentrated time and effort in a systematic approach that involves: assessing the present situation; anticipating future profitability and market conditions; determining objectives and goals; outlining a course of action; and analyzing the financial implications of these actions.
Business valuation is one of the main stages of the strategic planning of the company. Based on the assessment of business value company management determines the content and sequence of the implementation of the most important events, make decisions on complex problems of the company.
If a business is overvalued, it will not sell. If a business is undervalued, the seller will not realize a full return on investment. In most cases, a properly priced business will sell and all parties will walk away satisfied. A fair price of the business is the result of an independent professional valuator’s opinion.


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