Rules of Thumb

Many business owners believe the value of their business is net profit or gross sales multiplied by some industry multiple or rule of thumb.  While this idea sounds appealing, it fails to account for the operating and  financing differences found in any given industry.  These differences cause valuations to vary greatly.  In other words, no two business are alike, yet the application of industry multiples typically result in treating any given business enterprise as if it were the same as some average of all business within that industry.

Therefore, the application of an industry rule of thumb often results in a value lacking support and it is likely to differ greatly from the actual value that could be determined by a qualified business valuation professional.

Determining the value of a business enterprise requires a careful analysis of tangible and intangible components that make up the value of a business. Quite often, the valuation of intangibles comprises most of the value. The valuation of intangibles requires a careful and thorough analysis of a company's dynamics, financial health and risk factors.

This process requires skills acquired through specialized training, experience and continuing professional education. A properly prepared business valuation can provide management with an insightful tool that helps to identify company strengths and weaknesses that affect value, allowing management to more effectively focus resources to improve and maximize shareholder value.

Business valuations are most commonly needed to calculate estate taxes upon death, split up family assets in a divorce or to negotiate value in a purchase, sale or merger of a business enterprise. Besides these, there are other instances which might require a business valuation. Such as:

Shareholders' Buy/Sell Agreements.

Calculation of Damages due to Contractual Breaches or Wrongful Acts of Others.

Gifting Programs.

Marital Dissolution Matters

Dissenting Shareholder Actions.

Obtaining Financing.

Family Limited Partnerships (FLPs) Succession Planning

If you'd like more information about our firm or our services, feel free to ContactUs or if you would like to expedite your inquiry email us at inquiry@valfor.net

(*) Source: National Association of Certified Valuation Analysts.