One of the most important questions for any business owner is “What’s my business worth?” to which, the stock answer is “It depends.” This paper explains the factors affecting the valuation of a business. This is useful not only when selling a company, but also when bringing in new investors who buy a piece of the company.
Valuation thoughts and concepts
The fundamentals underlying the valuation of a business are no different than those for other things we buy and sell such are houses, cars, old furniture, etc.
Value is:
- Based on perception: “Beauty is in the eye of the beholder.” A house that one person perceives needs a lot of work is a “fixer upper” to someone else who sees an opportunity to turn his sweat into profit. The same exists for businesses.
- Personal: “What is it worth to me.” A 1957 Chevy has more value to someone for whom this brings back fond memories than to someone who sees an old car with a rough engine and no air conditioning. A business is worth more to someone who has successfully run similar enterprises.
- Relative: “Different values for different people”. Closing a sale (both parties agreeing to a value) is as much an art as a science. It is a matter of both parties seeing benefit in making the deal.
Read on:
http://www.corp21.com/Valuation.pdf
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