When modeling a business in Voyant, the value of the company has traditionally been based on its Book Value (Net Cash Value), the value of the company's assets less its liabilities.
However, many privately held businesses derive significant value from factors such as goodwill, intellectual property, future earnings potential, customer relationships, or other intangible assets. As a result, the market value of a company can differ substantially from its book value. This can also be an important feature when modeling a final sale of the business.
The new Market Valuation enhancement allows you to model these situations by entering a market valuation directly, helping produce a financial plan that more closely reflects your client's real financial position.
You will now be able to select a valuation strategy by clicking the drop down in the company module name "Valuation Strategy".
Market Value
This allows you to enter:
- a market valuation
- an annual growth rate
Voyant will then project the company's value using the specified growth rate rather than relying solely on the underlying balance sheet.
Market Value - Share Price (C Corporations and S Corporations)
For C Corporations and S Corporations, you can alternatively value the business using a share price.
Simply enter:
- the current share price
- an annual growth rate
If share ownership has been entered, Voyant calculates the company's market value using:
Share Price × Number of Shares
Note: If share ownership has not been entered, Voyant assumes 100,000 shares for valuation purposes.
How Growth is Applied
When using either Market Value or Share Price, you can specify an annual growth rate.
Voyant applies this growth to the entered market valuation over time, allowing future business values to reflect expected appreciation.
This growth is independent of the company's operating cash flow.
How Market Value Appears Throughout the Plan
When viewing the company from the owner's perspective, Voyant displays whichever is greater:
- Book Value
- Market Value
This helps ensure the owner's net worth reflects the higher economic value of the business.
Within the company itself, however, accounts, assets and liabilities continue to display their actual balances and continue driving the company's cash flow.
Important Considerations
Market Value affects the valuation of the ownership interest, it does not create additional cash inside the company.
For example:
- A company may have a market valuation of $10 million
- But only $1 million of liquid assets available
In this situation, distributions or share buybacks remain limited by the cash actually held within the business.
The entered market value represents what the company is worth, not the amount of cash available to spend.
Modeling the Sale of a Business
If your client intends to sell their business during the planning period, using Market Value can provide a more realistic projection of the sale proceeds.
Without this feature, the proceeds from a sale are based on the company's book value, which may significantly understate the amount the owner expects to receive. By entering a Market Value (or Share Price where applicable), the projected sale proceeds can better reflect the business's estimated market value, resulting in a more accurate representation of the client's future cash flow and net worth.
Important References:
How to sell a business in Voyant