This article was written to explain how to perform a private company valuation in preparation for selling a business. Business valuations have long been considered an important step in selling or acquiring a business. In general, valuations of companies are done by qualified and well-credentialed professionals. The business valuation experts look into every aspect of a business in detail and analyze the market worth and value in comparison to other investment opportunities. In calculating a Market Approach Valuation, it does not mean that only profits are considered, a thorough business valuation includes a review and consideration of the business’s resources, assets, competition, industry strength, brand identity, processes, intellectual property, physical possessions, and so on.
Market Approach Valuation provides a fair indication about where a business stands in comparison to similar businesses in the market. This is why anyone wishing to sell or buy a business needs to seriously consider the use of accurate and defensible business valuations. When selling a business valuation consultant will present and convey how to evaluate a business for sale. A solid and defensible private company valuation will help in obtaining a fair market price for the business. Likewise the use of a business valuation in an acquisition of a business, the buyer can be assured of not overpaying for a business but obtaining a fair market price.
- You have given a lot to this company in terms of time, money and effort. You deserve to get a great price for it and without accurate and defensible business valuations; the price you get may fall short of your expectations.
- You learn where your company stands in comparison to other similar businesses. By knowing your position in the market, you can become proactive in strengthening your business and its value.
- You are in a strong negotiating position to defend the selling price. You also possess the confidence that you are not leaving money on the table, and at the same time, you are assured that you are not setting an unrealistic price for the sale of your business.
- Other hidden advantages of obtaining private company valuation for companies help identify weakness and value drivers too so that management can make improvements in the business which will result in increasing business value.
- At times, selling a business may not be the best course of action. You may get an opportunity to trade the business in exchange for other assets like shares, stocks or another business unit. In such scenarios, business valuations can render a fair opinion in exchange deals.
- When business valuations of companies are performed, the valuation is useful identifying profit centers and loss centers within the business. This will help streamline the overall business thus increasing its value.
How to Utilize Private Company Valuation in a Business Sale From a Buyers Point of View and Why Should a Business Buyer Obtain a Business Valuation?
Here are a few points for you, as a business buyer, when you consider business valuations:
- The first and foremost consideration is that you will have the proper details regarding all the business financials and the assets of the company for sale and their true market value. You should also obtain a detailed picture of the quality of the processes that are in place and verify if all the necessary standards are being followed by the company.
- When you want to acquire a business, you cannot do so having only one option in your mind. You need to look out for various choices in the market and then chose the one that fits your criteria and goals and one that has the greatest value (return on your investment). The best way to test these factors is to obtain a credible business valuation. A Market Approach Valuation will enable you to perform a comparative analysis and deduce the option that yields the highest return.
- When you obtain a private company valuation, you are not just getting a price tag for a business; rather you are getting to know the market value of the business being purchased and how the business compares to other investments. This means that you can accurately know what the market is like in your industry category and business size.
- There are many companies in the marketplace that are placed for sale because they are not performing well. The sellers will try to cover up the problems and may not easily divulge the many negatives about an under performing business. This is why business valuations help reveal and identify issues and problems in the businesses for sale.
Last, but not the least, how to evaluate a business for sale and plan better with the aid of business valuation companies. Market Approach Valuation does not always have to be utilized for selling and buying businesses; many people use business valuations for business improvement, maximizing value and growth of businesses. You can also obtain a clearer picture of the strengths and weaknesses of a business by having a private company valuation performed. This will help you strategize your approaches, capitalize on the strengths and work on the weaknesses. Prior to purchasing a business, you can lay out a plan to make the acquisition venture a success. Since there is probably a working business model in place, with use of a business valuation report you will be able to incorporate principles from the business valuation to improve the existing business model. Thus business valuations don’t just define business value they also enable you to identify strengths and weaknesses in a business allowing you to correct, strengthen, preserve and grow business value.
Market Approach For Mergers and Acquisitions, Buyouts, Business Acquisition, IRS, Exit Planning
Brian S. Mazar, MBA, CBI
502-244-0480 ext. 24