Most of us have heard the old expression "beauty is in the eye of the beholder." The concept is equally valid when it comes to determining
the value of a company or a business. One of the first questions a valuation
specialist will ask a prospective client seeking an opinion of value is
"what is the purpose of the valuation?" The purpose will often determine the
valuation techniques to be used which will impact the valuation outcome.
The value realizable from the sale of a
business will also vary depending on whether you are selling to a strategic
buyer, a close competitor, a financial buyer / private equity firm, or a group
of your employees. Why should that be?
Different buyers may have differing plans for the business,
differing opportunities for synergy, and / or differing abilities to finance a
transaction, all of which can affect how much they are willing or able to
pay. And the business environment at a
particular point in time will also affect buyers’ appetite to pay a particular
price for a given business.
Here are some questions to consider as you think about valuation issues:
- What is my timeframe? (Now, 3 years from now, 5 years from now?)
- Who would be the
likely buyers for the business? (See above list)
- What factors might
affect how much those buyers would be willing to pay? (Is the business
growing? How profitable is the business?)
- What can I do to
improve the likelihood that someone will pay my asking price?
- Who can I get to help
me?