Mar
24
What’s the “Value” in a Business Valuation?

Many business owners wonder how much their business is worth, but when they get to the point of actually having their business valued, do they know what to look for?

Brokers, realtors, accountants, and chartered business valuators offer valuation services at different price points. Some even offer them for free. But not all valuations are created equal.

Valuation is not an exact science, nor is there a one-size fits all formula to value a business. Any serious valuator will tell you that while it’s part science, it’s also an art. They rely on assumptions and their expertise to assess the current market value of a business. If they get that value wrong, your business may sit on the market for ages with no buyers, or worse, leave you underpaid for the work you’ve put in to building your business.

So how do you get the most out a business valuation?

For starters, before you have a valuation done on your business, make sure the person or firm providing this service has experience valuing businesses. It is very different from valuing real estate – some businesses may have few tangible or physical assets. The valuation should also consider the value of intangible assets such as good will, and an assessment of the business and industry as a whole.

When you are getting a valuation done, look for one that has these qualities:

  • Is it defensible? Can you easily explain to a buyer why and how the value was determined and what valuation methods were used? (There should be a few!)
  • Is it detailed? Does it provide the added benefit of showing you what changes can be made to increase the value of your business, or what factors are negatively impacting its value before going to market?

A detailed and defensible valuation can be a valuable tool in preparing for exiting your business. It can help you understand how to increase business value, and help determine the right time to go to market. Not all valuations are created equal, so be sure the one you get provides value back to you.


Jessica Craig

Jessica Craig is a Business Broker and M&A Advisor with Pacific M&A and Business Brokers Ltd. She holds a Master of Business Administration (MBA) from the University of Victoria and is working toward her CBI Designation which will align her passion for small business and helping people reach their exit strategy goals. She is passionate about helping women understand the value of their businesses, make exit planning decisions and learn about buying a business as a way for them to launch their entrepreneurial career.

See all posts by Jessica

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