- July 16, 2014
- Posted by: Business Brokers & Consultants
- Category: Buyer Articles, Valuation
The answer to that question really is: “Why do you want to know?”
Now, I realize that may sound flippant, but without the answer it’s impossible to give an accurate response.
- Does an owner need to know for estate purposes?
- Does the bank want to know for lending purposes?
- Is the owner entertaining bringing in a partner or partners?
- Is the owner thinking of selling?
- Is a divorce or partnership dispute occurring?
- Is a valuation needed for a buy-sell agreement?
These are just a few of the reasons why knowing the value of the business may be important.
Valuing a business can be dependent on why there is a need to do so in the first place, because there are almost as many different definitions of a valuation as there are reasons for obtaining one. For example, in a divorce or partnership breakup, each side has a vested interest in the value of the business. If the husband is the owner, he wants as low a value as possible, while his spouse wants the highest value. Likewise, if a business partner is selling half of his business to the other partner, the departing partner obviously wants as high a value as possible.
In the case of a business loan, a lender values the business based on what he could sell the business for in order to recapture the amount of the loan. This may be limited to the value of the hard assets; namely fixtures and equipment, receivables, real estate or other similar assets.
The point is, the purpose of the Valuation is just as important as the financial records used in preparing it. The scope, valuation methods used, and approaches to value used in the Valuation will all be dependent upon the the purpose for which it was prepared. So, its important to be clear about this when obtaining a valuation. There is no point in spending thousand of dollars on a valuation that does not satisfy the purposes for which it was obtained.
Business Brokers and Consultants has been partnered with Certified, Third-party Valuation providers for years. We can help you identify the type of Valuation you need.