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What Are Some of the Difficulties with Business Valuation?

Posted by Andy DeJaco in Resources Selling Websites

No matter how you come upon the topic of scheduling a business valuation, it is important to have a relationship with an experienced business broker who can guide you through the process and help you to get the valuation that will help set you up for success in selling your business.

It can be uncertain to approach this process on your own and it can also set you up for challenges and potential issues in the business valuation and selling process. This becomes especially problematic when other people have a business interest in the company.

There are three major approaches to determining the value of a business interest; the market approach, the income approach and the asset approach. While the asset approach looks at a value that remains relatively simple at assets minus liabilities, leaving the total value, this means that assets include both intangible and tangible assets. It can eb rather difficult to use this approach because it can be challenging to put a value on business assets.

While some items that a company owns could eb relatively easy to value, others might be more challenging. This becomes especially problematic when valuing inventory. The market approach, on the other hand, calculates the value of a business by comparing it with other similar businesses that have recently been sold.

This is similar to how a real estate appraiser will look at comparable houses in a neighborhood when determining the overall value of a house being appraised. If there are no similar businesses that have recently been sold, however, this means that it can be difficult or impossible to get an accurate comp. The final method of valuing a business interest is known as the income approach which uses historical information and formulas to predict anticipated cash flow and profits when looking at the value of a business.

These formulas consider future benefits in addition to the rate of return or risk, and in fact, when it comes to determining the value of a business interest this is the most commonly used method. If a business interest is small and there is no dispute as to what it’s worth, then both parties can easily step up and name its worth and use that value when determining whether that person will be bought out for the purposes of selling the company.

Attorneys can also be used to put a value on the business if the interest is relatively simple and small. However, the attorney who advocates for the person owning the interest in the business will no doubt argue that the business is worth less than the person who does not currently have an ownership interest. More often than not, business valuations require an expert to look into the liabilities, assets, finances, history and other aspects of a business to determine the overall value. All parties involved are strongly recommended to hire outside experts to get a clear perspective on what the company is worth. Schedule a consultation today with an experienced business broker like those working at Website Closers. We can assist you with the whole end to end process.