The Truth About Business Valuations

Business Valuations

Business Valuations

Ask anyone involved with valuing businesses for a living and they will tell you that there is never one number. In fact, most business valuation opinions will be based on the average (or even weighted average) of multiple valuation methods.

 

In addition, a valuation conducted yourself is less than impartial. This can lead to challenges when you have your business for sale and are in the negotiation stage, as the buyer likely will not trust your number and you are probably not going to trust their number. As such, you are better off using a broker to analyze your business and provide a valuation opinion.

 

While you might know the math, and it would save you money to value your business by yourself, the reality is that this is not something you should do. For starters, there is the emotional component which even private equity investors fall into when valuing the business for sale in their portfolios.

 

How does this happen? In most cases, entrepreneurs are tied to an emotional value of their business. While this makes sense, (after all, they have toiled to build their company into what it is today), it is also a shame as failing to properly value their business could cause them to miss out on opportunities to sell.

 

Ask any business owner and they will tell you with pride how much their business is worth. However, many of these business valuations wildly overestimate what they could actually sell their company for.