Key Benefits of A Business Valuation
Judging value is a subjective process. Whether you are shopping for a vacuum cleaner – or valuing a closely held technology business – it all comes down to perceived value.
With a vacuum cleaner, you can speak to salespeople, family or friends or search the web. But what factors affect the value of a small business? And how do we access those factors?
When a business undergoes a formal and certified valuation, specialists examine similar criteria, including but not limited to:
• History of operations
• Growth history
• Potential target market
• Current business environment
The valuation process results in a final appraisal. But what is the importance of this document?
This report can be used for many purposes: negotiating contracts or investments, selling a business, compensation packages and more. Further, an entrepreneur frequently has a need for capital but does not want to “give away the farm” when negotiating with banks or other lenders. The valuation represents a realistic picture of a firm’s worth and will certainly assist the entrepreneur in making a better deal!
There is more. With regard to attracting employees, a valuation offers the basis for possible upside – and if the deal includes partial ownership – the valuation must be part of the determination of how many shares to distribute.
As you can see, there are many reasons to value a business. But it should be noted that the value of your company is dynamic; as all the relative factors change, so does the value of your business. Also, while valuation reports appear to be entirely quantitative, the reality is that significant consideration is given to qualitative factors as well, so professional judgment is critical. Therefore, working with a qualified specialist is critical.
Evan Levine is the co-founder of complete advisors a wealth management firm that provides valuation, valuation enhancement, and exit planning to closely-held business owners. Evan can be reached at 516-240-6161 or firstname.lastname@example.org
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