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A business valuation is an in-depth analysis of the market value of your business. Valuations are performed using a range of business data. A valuation performed by an experienced, credentialed valuation professional provides an impartial view into your business providing valuable insights for many business strategies and needs.\u00a0\u00a0\u00a0<\/p>\n
There are several reasons why a business owner would need to know the value of a company. Here are a few common scenarios:\u00a0\u00a0<\/p>\n
If you go to your favorite search engine and type in \u201cbusiness valuation methods\u201d, you will run into numerous valuation techniques. Let me tell you that not all of these techniques are created equal. Especially methods that rely on rules of thumb<\/u><\/a>, which refer to generalized, non-transparent, and sometimes outdated industry guidelines to arrive at a business value. These methods are unable to accurately reflect your company\u2019s own unique attributes, which can include a range of factors, like degree of recurring revenue, profitability\/margins, rate of annual growth, new accounts and services, transitions in the business, depth and experience of the management team, a niche industry focus, certain intangible assets and intellectual property, etc.\u00a0\u00a0\u00a0<\/p>\n To arrive at an accurate valuation, a business owner needs to make sure the company\u2019s unique attributes are captured to separate their business from similar companies \u2013 or risk leaving cash on the table.\u00a0\u00a0\u00a0<\/p>\n Here\u2019s an example of how a business owner of Company A would calculate their company\u2019s worth using a market-based approach. Company A\u2019s owner researches or finds out from peers in the industry that similar companies sell for a multiple of 4x to 5x EBITDA. Company A\u2019s owner uses this multiplier with their company\u2019s own EBITDA to arrive at a valuation. However, this method fails to account for Company A\u2019s unique business traits.\u00a0\u00a0<\/p>\n Rather than using one of these generic valuation processes, I\u2019d suggest seeking out a licensed valuation expert to determine a trustworthy company valuation. Generally, experienced professionals use a combination of principles from each of these methods combined with unique business factors that separate the company from similar businesses in the industry.\u00a0\u00a0<\/p>\n A business appraiser will use metrics and factors like the following to determine a business\u2019s value:\u00a0\u00a0<\/p>\n Failing to have an accurate picture of your company\u2019s value can cause strategic mistakes, and potentially, financial loss. From higher than necessary interest rates to receiving low acquisition offers from potential buyers, you could easily leave money on the table. I cannot emphasize enough the value of a thorough business valuation with a professional who routinely values companies like yours.\u00a0\u00a0<\/p>\nCommon Rules of Thumb\u00a0<\/strong>\u00a0<\/em><\/h3>\n
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Credible Valuation Approaches and Methods Used by Experienced Valuation Professionals\u00a0<\/strong>\u00a0<\/h3>\n
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The Dangers of an Inaccurate Valuation\u00a0<\/strong>\u00a0<\/h2>\n