The Complexities of Valuations
A lot of training and experience goes into reasonable valuations. A variety of complex factors are involved. Plus, there are certainly some subjective elements. That means that one professional’s valuation may be different from the next. Let’s look at some factors involved in achieving an accurate valuation.
Intellectual Property
Determining the value of IP or other intangible assets can be difficult. If the business has trademarks, copyrights, and patents, it can be far more challenging to assign a value correctly.
Products and Services
A lack of customer diversity can bring down overall values. As it turns out, businesses that only offer one product or service are far more challenging to analyze. If a company has a lot of product diversity, a professional will typically assess a higher value. The same is true for companies with only one or two key customers.An l
Employee-Owned Companies
A company can lower its marketability if it is partially or entirely employee-owned. Many company owners do not realize that employee stock ownership plans (ESOP) can change its overall value.
Life-Cycles and Supply Chains
In some cases, a business is nearing obsolescence due to advancements that have taken place. We often see this in technology companies. It should come as no surprise that if a business is near the end of its life cycle, this will raise potential issues during the valuation process. On a similar note, could the business be susceptible to supply disruptions? If a business is assessed as vulnerable in that area, it could also lower its overall valuation.
Accuracy of Data Received
Of course, the person handling the valuation must rely on the accuracy of the factual information they receive. If the numbers are off, the valuation cannot be as accurate.
These are just a few examples of issues that can impact a valuation. If you’re trying to get an idea of what your business may be worth, or if you‘re wondering what factors might affect your valuation, reach out to our team. We’d be happy to discuss this in greater detail.
Copyright: Business Brokerage Press, Inc.
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