Business Valuations in Sacramento
Do you know what your business is worth? One of the most important steps in selling a business is pricing it correctly. There are several ways to determine what another party would be willing to pay for your business; a formal business valuation is one option. Alternatively, many businesses can be properly priced with a Broker Opinion of Value.
Ultimately, the right approach will depend on the size and complexity of the business, the type of business, and the intended buyers of the business (i.e. individual investor vs. synergistic buyer).
What is your business worth?
The impact of improperly pricing a business can manifest a number of ways and at different points in the transaction. For example:
- A business owner attempting to sell without the services of a high quality broker may have unrealistic expectations about the value & his/her business, set the asking price too high and soon become frustrated with the lack of viable inquiries s/he receives.
- A buyer may uncover discrepancies in the inventory value during due diligence, bringing the transaction progress to a halt [if not completely derailing it].
- A prepared buyer and seller may both become frustrated due to their inability to find a third party lender to help fund the transaction.
Standards of Value
Value is not a singular, universal term when it comes to determining the value of a business. There are at least four common standards of ‘value’ you will hear referenced:
- FAIR VALUE (SPECIAL VALUE): The price at which a property will change hands between a willing buyer and a willing seller considering the specific advantages or disadvantages each party will realize (aka synergistic buyer).
- INVESTMENT VALUE (GOING CONCERN VALUE): The price at which a property will change hands between a willing buyer and a willing seller considering the investment objectives of the identified buyer (aka financial buyer).
- LIQUIDATION VALUE: The price at which a property will change hands between a willing buyer and a compelled seller when the property cannot be exposed to the open market for a sufficient period of time (aka orderly or forced sale).
- FAIR MARKET VALUE: The price at which a property will change hands between a willing buyer and a willing seller when both parties have reasonable knowledge of the facts and neither is compelled to act.
Due to its objectivity, and excluding bankruptcy scenarios, Fair Market Value (FMV) is commonly viewed as the most relevant standard of value when evaluating a business for acquisition purposes, although other standards of value may be included in the overall analysis.
