Exposing the Eight Myths of Business Valuations
Valuing a small privately held business is very much like painting a picture.
It is a creative endeavor, not a science.
No single method or procedure for accomplishing this task exists.
Generally accepted principles, such as those found in the accounting profession, do not apply to business valuation.
It isn’t until the brush has had the time to do its work that the two parties to a transaction – the business owner on one hand and a business buyer, partner, lender, the IRS, or the courts on the other hand – negotiate the fair market value of a business.
Valuing small, privately held businesses requires a mindset significantly different from that of securities analysts or real estate appraisers.
Securities analysts rely on mathematical formulas and statistical derivations to value traded securities, but these are largely minority interests do not reflect the total value of a company; real estate appraisers relate the value of land and buildings to construction indexes, a grossly inappropriate method for valuing a growing concern.
So, let’s take a look at the myths and discuss how we can help you bypass them and succeed.
Here are the eight most insidious myths:
- The only time a business owner needs to value his or her business is when he or she is ready to sell it or when his or her banker wants a valuation in support of a loan application.
- A company’s earnings determines how much the business is worth.
- XYZ Corporation sold for $5 million, so my company must be worth the same amount.
- The most logical way to value a company is to multiply its earnings by five.
- Only companies that turn a profit are worth anything.
- Business owners know the value of their companies better than any outsiders, including professional appraisers.
- The best way to value a company is to multiply its annual revenue by two.
- The market value of a company is in the eye of the beholder and not determined by fancy mathematical formulas.
The selling and buying of a business is a very complex process.
Perhaps, the most important business transaction you will ever pursue is the sale of your business.
Selling a business requires full time attention, and any business owner who has sold a business on their own will tell you it’s a tedious and stressful process.
By relying on experts trained in the sale of businesses, you can maintain or increase the value of your business, while the broker is working on the sale.
As an experienced broker having extensive knowledge about the industry it gives you the cutting advantage of ensuring you get the highest price possible.
By utilizing my services, you will have an expert in your corner that is familiar with the nuances of selling a business that will prove an invaluable asset.
Confidentiality, as well as establishing the right selling price, is crucial to the success of the deal.
As a seasoned business advisor, I have the ability to maintain your confidentiality, properly research highly qualified buyers, utilize a worldwide network to advertise your business and establish the right selling price.
Lastly, I know how to structure a transaction, manage the complexities of due diligence, and coordinate with all parties to ensure a successful closing.
To learn more about the services I offer together with my Transworld Business Advisors team, and obtain a free, no-obligation meeting, fill out the information below by clicking on the button.