What are Business Valuations For?

Every business knows the value of their products, but how many know the value of their business as a whole? Business valuations can be a crucial step in preparing a business for sale, merger, or division.

In the world of business everything has a price. Business leaders are experts in evaluating the worth of a service or product – both what it will cost the to provide it, and what value it will have to others who might want it. But sometimes a business itself is the product, and pricing an entire business is much more complicated than pricing individual goods. That's when business valuations prove their worth. 

Business valuation vary in their scope and intent, and can be carried out at certain crucial stages in a company's life cycle:

1.      Pricing a company to sell. When a business owner is considering selling their business, one of the first steps is to have it valued. Business valuations used for pricing purposes are often more general, big-picture appraisals. They will look at past and future predicted profits, at the value of assets including customer lists, and at competition in the market. This allows for a ballpark value that can help the owner in setting an asking price and negotiating effectively.

2.      Auditing for sale or transfer. Although ballpark price might be fine for putting a company on the market, sometimes a more specific value is required to negotiate a sale or transfer. Larger corporations in particular are likely to require highly detailed, piece-by-piece business valuations so they know whether a company is worth their investment. Likewise, if an owner or partner is selling out their share of a company, they will want to establish the value and thus purchase price with a high degree of precision before making the transfer. This can serve to protect both parties in a sale or transfer, and the business is generally valued as a going concern – that is, with the intention of continuing to operate.

3.      Dividing or closing a business. Sometimes a growing company will be divided into two separate businesses, or a business has to close due to bankruptcy. In these cases, the business' value as a going concern is not as important as knowing the precise value of each of its individual divisions or assets, to sell them off separately.

Anytime a company is poised for a major company-wide transition, business valuations can be used to determine whether the cost is worthwhile and what each party's fair stake should be. For more information click here!

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Created on Dec 31st 1969 18:00. Viewed 0 times.

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