Placing a monetary value on a company or business involves much more than simply determining what a potential buyer might pay for it.
There are many factors that need to be taken into account – such as the type of company, market value, investment value, growth potential, tax laws and, of course, the individual circumstances of each business owner.
You may have a “number” in mind of what you believe your business is worth. But are you sure it’s right? It might be too low. It’s in your best interests to discover the true worth of your most valuable asset.
A business valuation takes into account all aspects of your business, from a review of the current management to a forecast of economic trends to a look at intangibles, such as goodwill.
Because there is no accurate rule of thumb to value a business, each valuation is a complex assessment of the unique history, financial status and future outlook of your individual company.
How is business worth determined?
The value of your business depends on the type of business being valued and the standards used. Among the most common standards are:
- Fair market value – The price that a willing buyer pays a willing seller.
- Fair value – Typically defined by state statute. It is commonly used in dissenting shareholder actions.
- Investment value – The value to an investor based on his or her individual investment requirements. The value can differ among investors because of perceived differences in:
- Earning power
- Tax status
- Liquidation value – The net amount that an owner could realize if a business is terminated and the individual assets are sold off.