Business value analysis

Any business, regardless of size, strives for development. However, it is possible to correctly assess the prospects only if the owner knows the objective state of affairs. For this purpose, the Business Valuation mode was created in the Torgsoft program. Business valuation gives a real picture of the state of assets and allows you to develop a development strategy.

Why do you need a business valuation?

Business valuation is aimed at determining the clear value of a business and its performance.

Tasks of business valuation

• Determine the real value of the company. Owners' opinions about the value of a business are quite subjective, and only a rigorous calculation can provide objective information and take into account all the nuances and better navigate the market.
• Show the current financial position, fluctuations in the value of the business, and factors that affect the amount of profit.
• Provide information for effective management of the company and making informed management decisions.

Business value analysis in Torgsoft

Torgsoft uses the cost method of valuing a business as the value of the company's property. First, assets are valued, followed by an analysis of inventory and stocks. After that, accounts receivable are evaluated.

Business value analysis takes into account:

• Cost of goods in stock. It is calculated as the quantity of goods multiplied by their cost. The cost price is calculated according to the program settings.
• Cost of equipment. The current value of the company's equipment, including depreciation.
• Amount in cash. The amount in all cash desks, converted into national currency at the current exchange rate in the program.
• Amount on current accounts. The amount on all current accounts converted into national currency at the current exchange rate in the system. For conversion, a liquidity ratio is additionally specified, since withdrawals from the bank, transfers between accounts, and other account transactions incur additional costs and reduce the total amount.
• Balance with partners. Shows the total balance with counterparties: suppliers and customers.

All this data can be obtained both for each store and for the overall result of the retail network.
 
The main feature of the business value analysis is its visual design. The data is presented not as a set of numbers, but as graphs for a specified period. The graph helps to assess the direction of the company's movement: it is clearly visible in which direction the business is "rolling" and the reasons for this state.

The example above shows that after the total balance drops at the end of July, the total balance, the cost of goods in warehouses, and the balance with partners rise. Based on the graph alone, we can conclude that the suppliers owed us money and that the balance changed after the goods were delivered. The debt decreased, and the amount of goods in the warehouses increased.
You can also get a decryption of the data and see :

• Customers and suppliers who owe us money - a list of debtors is displayed, divided into suppliers and customers.
• Customers and suppliers to whom we owe money - a list of those to whom we owe money is displayed, divided into suppliers and customers.
• Cash balance at the end of the day.
• Balance on current accounts at the end of the day.
• The cost price of balances at the beginning of the day is the cost price of goods at the Accounting Centers of the retail network.
• The sum of receipts, sales, returns, write-offs, defect returns, and returns to the supplier - receipts by accounting centers (receipt, customer return, revenue internal transfer), expenses by accounting centers (sales, expense internal transfer, write-offs, defect returns, and returns to the supplier).

Business analysis mistakes and how to avoid them

In order for the program to display objective information, you need to enter the initial information accurately and on time. If the goods have arrived, but are not unpacked and are not available for sale, the invoice in Torgsoft should be deactivated. If you have paid off a supplier or customer, this transaction should be immediately entered in Torgsoft. If you do not record in Torgsoft that you have already paid the supplier, you can accidentally pay them twice.
 
The main rule is that the data in the program should show actions in reality.

How cost calculation affects business value

In Torgsoft, the business owner chooses the method of calculating the cost price for the remaining goods in the warehouse. The program gives you the right to choose, but in this case, the responsibility lies with the user.

For example, our clients initially prefer the "last purchase" method. But if there are a lot of goods in the balances that were purchased at a price different from the last purchase price, then the total amount of goods will be underestimated or overestimated. And if there are 1000 items in the warehouse, the final data will differ significantly from reality.

That is why the developers recommend using the "by delivery batches" method, which will calculate the unit cost of goods in the warehouse depending on the amount of stock and the purchase price of goods from each batch.

What to do with business value information

The goal of any business is to increase profits. Based on the information from the analysis, you can take steps to increase the value of the company:

• Cost reduction. Reducing cash outflow increases the value of the company.
• Reduce accounts receivable. Debts of counterparties withdraw working capital from the business and indirectly affect revenues and development.
• Working with consumers. The fewer customers who go to competitors, the higher the retail chain's revenues.
• Optimization of warehouse stocks. Inventory is frozen money. Excess inventory requires additional warehouse space. Goods become obsolete if they are stored for too long.

From all of the above, there are two main rules for increasing the value of a business: increase revenues and reduce costs.