What’s your business worth?
Article by Eric Purvis, Director of TAA Planning.
Methods of valuation compared
Empirical research conducted by the Pepperdine Private Capital Markets Project indicates that approximately 40% of all companies that are brought to market do not result in a transaction, with the largest reason for failure being a value gap in the expectations between buyer and seller. (Kenneth J. Sanginario, The Value Examiner, Nov/Dec 2013)
You’ll be reading this article because you are interested in understanding the value of your business. You may want to exit, free up some time, sell, or enter into some kind of agreement with another business – or you might be looking at bank finance. Whatever the case, you want to know your business’ true value, right?
Obviously the first step in understanding how to liquidate, leverage, or build value is establishing a baseline. This means you’re going to need a detailed business valuation. Owners often think they know their company’s value, but in reality they’re shockingly off the mark.
A business appraisal firm surveyed 2,000 business owners and found that most misjudged the value of their businesses by 50% or more — and sometimes by millions of dollars. Worryingly, over half of business owners overestimated the value of their companies. The major problem this can cause is that people embarking on any kind of venture, growth strategy, or exit, are banking on a certain amount of financial capacity. But in fact, they are sometimes significantly overestimating this capacity.
The methods most commonly used to establish a business’ value are:
Current marketplace […]