In our age of highly competitive startup environment where new businesses are incubated and sold every hour, certified business valuation gains a lot of importance. If you wish to sell the business, you should know how much your business is worth. If the value is overstated, no one may come to buy, if it’s understated, you will lose in the process. Hence, certified business appraisal is crucial.
Difficulty in Valuation
It is not easy to value a business. There are both tangible as well as intangible assets which contribute to the value of the firm. These intangible assets like intellectual property and knowledge assets have to be assessed carefully. The right valuation gives you an upper hand during negotiation.
Subjectively deciding the price based on whims of the business owner will not have value in the market. The owner cannot determine the value of the company based on the debt he wants to recover. No buyer will be willing to pay the price that the company is not worth.
Determining the Business Value
Mere estimation cannot ascertain the value of the business. It doesn’t matter what you or others perceive the value of the firm. What matters is the real value of the business enterprise. The intrinsic worth of it should be assessed objectively without any ambiguity.
Irrespective of whether the valuation is a simple or complicated one, the value has to be ascertained scientifically. A simple business with its office in a single location may be easier to appraise. However, a company with an extensive network and a lot of intellectual property is difficult to value. The account books play a significant role in determining the value of the business. If they are not up to date or maintained improperly, the valuation could totally go wrong.
It also becomes difficult to value the business that has multiple owners with different interests. The motto of leadership and business owners also influence the valuation.
The importance of the business valuation cannot be stressed enough. In our capitalistic economy, it’s the most important criteria by which the growth of the business will be assessed. If the profit and loss factors don’t reflect in market valuation, then they will have no relevance in the business.
Different Ways to Value
A business valuation carried out for liquidation purpose and to present before the law requires sophisticated assessment. It should meet legal standards and comply with USPAP rules. On the other hand, a business valued for the purpose of selling may depend on broker value. Ultimately the actual value should be assessed through certified business valuation. It has to be scientifically carried out after considering all the costs.
An unbiased report from a certified expert will have value in the market. The dealings will be performed based on such report and not based on biased valuation.
The author of this article is an experienced and certified business consultant. He has certified many businesses and helped them grow. Find out more about the necessity of certified business valuation for businesses!