Myth: I only need a business valuation if I am selling my business.
Truth: From obtaining SBA loans to property distribution during a divorce, there are many reasons that business owners need a business valuation. Check out our blog Why All Businesses Should Have a Current Business Valuation
Myth: I have a business valuation from several years ago, so I do not need a new one.
Truth: Most businesses are not static entities. They are usually dynamic organizations that change in numerous ways as the years go by. Even if the business does remain much the same over a period of a few years, the overall economic climate that the business operates in will surely change. Since valuations use a wide number of factors in determining value, the date of valuation can make a substantial difference. For this reason, it is important to have a current, up-to-date valuation. For more information, read our article, Date of Valuation
Additionally, business valuation reports are compiled based on the purpose they are being used. For different uses, different types of reports may be needed. It’s imperative to ensure that the report includes all of the necessary components required for the purpose of the business appraisal.
Myth: I don’t need to pay someone to do a valuation because I can use a free online valuation calculator.
Truth: While online valuation calculators are useful in estimating an approximate value of the company, they are far from accurate. A true, comprehensive, business appraisal takes all factors into consideration and provides a much more accurate picture of the value of the company. For more information, read our article, Online Business Valuation Calculators – When free is not worth the price
Myth: My accountant offers business valuations and already knows my business. So I do not need to have a valuation specialist do one for more money.
Truth: Financial matters are normally thought of as being fairly concrete; the numbers are what the numbers are. However, business appraisals are a little more complex than simply looking at a balance sheet or Profit and Loss Statement. As specialists, valuators have to be able to know what information to include in the report and what information is irrelevant. Understanding the intricacies of factors such as personal goodwill vs. enterprise goodwill requires extensive training and experience. As such, business valuations are part science as well as part art. With this in mind, it’s important to hire someone that has the knowledge and experience to provide the most accurate report possible. The way to do so is by only hiring a certified business valuator.
It’s possible that your accountant is also a certified business valuator. However, it is important to point out that a CPA who is also an accredited business valuator and who is conducting a valuation of a business for which they perform other professional CPA services may be in violation of the AICPA Professional Standards for conflict of interest and independence. Thus, it is imperative to find someone that is a certified business valuator. For more information, read our article, The Importance of Hiring a Certified Business Valuator
Myth: All business valuations are completed the same way.
Truth: There are actually three basic approaches to valuing a business, Market Value Approach, Asset Approach, and Income Approach. Each approach may result in a different appraised value. It’s the job of the valuator to determine what approach or approaches should be used in order to determine the most accurate value according to how the report is going to be used. Once again, this is why it’s important to hire an experienced and knowledgeable valuator.
Myth: When the Fair Market Value Approach is used, this indicates the amount that I will get when selling my business.
Truth: The Fair Market Value Approach or FMV is used to calculate a theoretical price for the business. Unfortunately, this price does not always translate to a real-world selling price. This is due to the many variables inherent with selling a business. For example, a strategic buyer may pay a price greater than FMV to consolidate an industry, eliminate a competitor, or vertically integrate.
Myth: I know my business better than anyone else, so I don’t need someone to tell me what it’s value is.
Truth: As a business owner, you work hard at knowing your business and the field you are in. You understand your products and services and know what your customers want. You know your books and financials, so it seems only logical that you would have an understanding as to the value of the business. However, valuing a business is a complicated endeavor that involves factoring in variables that you may not even be aware of. It involves understanding not only your business but also how it fits in with the current economic climate. In other words, it involves specialized knowledge and experience that only a competent valuator will be able to provide. The truth is, most business owners do not have any idea as to what the true value of their business is. Just as you should have a trained auto mechanic repair your car, you should have a certified professional appraise your business.
If you have any questions or would like to schedule a valuation, just let us know and we will be happy to assist you!