What is your business worth?
There are many circumstances where a formal Business Valuation is required. Business valuations are also known as Business Appraisals. As you might imagine Business Appraisal is a complicated business.
There are different kinds of appraisals for different circumstances. Here is a summary:
- Business Appraisal “Calculation of Value” – this valuation is often used in Buying a Business or Selling a business. The premise is that buyer has no formal ties to the business and the the transaction is an arms length transaction for the sale of 100% of the business. This valuation is generally viewed as a purely financial opinion of market value and makes no assumptions about how a specific buyer might value the business.
- Estate Plan Valuation – This is a valuation done for business owners who have the business inside their estate and required the appraisal for tax planning issues
- Buy/Sell Partner Appraisal – This is often used when one business partner is buying out another business partner.
- ESOP Appraisal – This is used when the company is installing an ESOP (Employee Stock Ownership Plan) so that the employee owner have a way to understand the value their business ownership interests.
- Divorce Valuation- Self-explanatory and similar in many ways to the Partner buyout vsaluation listed above.
- Personal Goodwill Valuation – Sometimes used in a business transaction where an owner is personally involved and critical to the business. For instance a world renown heart transplant surgeon likely has a lot of personal goodwill built uop because people seek out that surgeon INDIVIDUALLY. If that surgeon left the business it’s likely many patients would not contact the business.
- Minority Interest Valuation – This is a valuation used to assess the value of an interest in a business where the minority ownership is not liquid. For instance, if I own shares of IBM I call call my broker and have the shares sold at a published price in 5 minutes. However, if I own 10% of XYZ, INC that is not a publicly traded company with 90% owned by my boss Mary, then I would need to try to find someone to buy my 10%. In this case, since Mary owns 90% of the company and is my boss, my 10% is probably not worth 1/10 of 100% value of the company. This valuation helps determine what your 10% is really worth