When it comes to valuating a business for sale or purchase, you need the most accurate figure possible to ensure that both parties (buyer and seller) get the fairest deal. But accuracy is notoriously difficult when it comes to business valuation. There are many factors that are difficult to predict and assumptions that create such a wide range of valuations that it can bring the whole exercise of business valuation into question.
There is a trove of data out there that can help assessors and consultants make more accurate predictions. If analysed correctly, social media data can give us insights into industry and market trends, competitor analysis, intangible assets and the overall trajectory of an existing business, all of which can contribute to a more accurate valuation.
In today’s blog, we’ll look at the incredible way Symanto AI technology can help extract useful insights from social media data to help with business valuation.
Business Valuation Methods And Their Drawbacks
ASSET-BASED
The most straightforward value to calculate is the “liquidation value.” Simply tot up all the assets and subtract the liabilities to get the net worth. As the name suggests, this method is most often used in the event of liquidation. This is similar to the “book value” and is sometimes used interchangeably.
This method doesn’t include intangible assets and it doesn’t take into account the earning potential of a company if it stays in business. That is why the asset-based method is generally reserved in instances of liquidation.
MARKET APPROACH
Another method is to base the valuation on revenue. How much does the business make in sales annually? Then with the aid of a stockbroker, ascertain how much a similar business in the same industry is worth in relation to its sales.
The main problem with this approach is that it can be quite vague. It’s difficult to compare two companies, particularly in niche industries. Lack of quality data can compromise the accuracy of business valuation calculated in this way.
DISCOUNTED CASH FLOW (DSF) ANALYSIS
The DCF analysis calculates the present value of a company based on its current cash flow and projects it into the future. It’s far more detailed than the other methods listed here, and it determines the intrinsic value of the business without the need to compare it to competitor companies. Since it gives a much clearer overview of the trajectory of a business, DCF analysis is the preferred business valuation method for mergers and acquisitions.
However, it is also extremely prone to inaccuracies. DCF analysis requires you to make estimates and assumptions about sometimes unpredictable things such as changes in the market, industry changes and shifts in consumer behaviour. This method is also criticised for being too inward-looking and not paying due heed to competitor analysis and valuation.
How Social Media Data Can Help
Thankfully, there is a tremendous amount of data out there for your appraiser to use to improve the accuracy of their predictions and assumptions. Social media and review sites hold key insights into where a business sits in the market, what is its trajectory, and, more generally, it allows you to view industry trends – all important information when conducting a business valuation.
However, the challenge for appraisers has been finding and getting to grips with tools that can turn qualitative data into useful insights. This is exactly what the Symanto Insights Platform is designed to do.
Symanto’s deep learning AI technology draws statistics and quality insights directly from organic conversations online in review sites, on social media, surveys, in fact in any instance where you can capture qualitative data. Symanto tools give insights into factors of business valuation that are otherwise difficult to capture including:
- Intangible assets
For example, our clients use Symanto tools to evaluate brand equity. Brand recognition, brand loyalty and the likelihood that customers will recommend the brand all help to determine the future trajectory of the business. Is the business likely to grow exponentially? Or is customer acquisition and retention an ongoing challenge?
- Market trends
Symanto does more than identify buzzwords relating to your industry. It detects how people think and feel about topics through aspect based sentiment. What are people talking about? What do customers increasingly value? Is there a growing interest in the services or products offered by the business, or has the sun set on that particular trend?
- Overall business trajectory
Brand sentiment can be measured over time to discover whether or not the business is on an upward trajectory.
- Competitor analysis
Find out how a brand compares to its main competitors both in general terms of brand sentiment and on specific topics and criteria. For example, one brand may be favoured for its value, while the other may be favoured for its wide product range. Discovering a brands’ position and niche in the market not only assists with brand valuation but also uncovers the potential for future growth.
- Due diligence reporting
Symanto can be used to support due diligence reporting for those conducting a business valuation as part of the due diligence process.
Get in touch and talk to our team about creating a personalised solution to help you and your consultant or assessor conduct a more thorough and accurate business valuation using social media data.
