The Nuts and Bolts of Valuing a Business

In our last article we discussed just how important it is to disclose the motive for obtaining a business valuation.  Valuations may be required for estate planning, due to divorce or partnership dispute, or for a number of other reasons. In most cases, however, when a business owner comes to me and asks me about the "value" of their business- what they really want to know is  "what do you think I can sell it for?" I wish the answer to that question involved a formula like "Multiply the number of hours you have put into this business by 1,000 and the amount of capital you invested by 2.  For every family event you missed to take care of business, add a million dollars.  Apply a multiple of 10 for every day you didn't quit when the going got tough, and instead toughed-it-out.  That's what your business is worth." Like I said, I wish that was the formula.  Unfortunately, it's not. The "Fair Market Value" of a business is: “The price at which the property would change hands … [Read more...]