It is part of our human psyche to keep score, we can’t help ourselves. Even in a world of “Everyone gets a participation ribbon” we know that someone is keeping score.
In business, the question asked when finding out the score on one’s scorecard is, “what is my business worth”? Quite often it is a question that is asked out of curiosity, or to determine if a milestone or marker has been met at that particular time.
It’s been said that the true value of a business is what the willing buyer is prepared to pay a willing seller, assuming neither are under stress or duress. This aforementioned value by any definition would be truly objective.
However, as in the example given above, the metric of a willing buyer and seller is not always available. There are too many occasions and instances, as are outlined below, in which a business value is required, and it’s at this point that one may call upon a professional who specializes in Business Valuations.
Many elements are used in a business valuation and may exceed what we see in the material world. Certainly the tangible assets and liabilities are first considered, fair market values are determined for these tangibles by qualified estimators or appraisers. It is then that the intangibles must be brought into the valuation process.
The palpable elements are easy to identify: equipment, land, buildings, inventory, receivables, payables and even bank debt are all very typical. It is only those aspects which are unseen that can be elusive, hard to measure and nearly impossible to weigh. By no means are they quantitative like the perceptible aspects of a business. They include things like: management, location, work force, suppliers, customers and business model. Quite often these indeterminate attributes get summarized into one word – goodwill!
Knowing the value of one’s business can be crucial in a wide range of circumstances. It’s only responsible stewardship to know the value of one’s business in the following situations:
- A desire to sell or market a business for sale;
- A breakdown in the relationship of the owners of the business;
- A breakdown in a personal relationship of the business owner;
- A desire to set in motion a plan for the future estate of the owner.
When the time comes to exit the business and a sale is imminent or a re-organization is required, it is imperative that the owner knows the value of their business. This is where an independent valuation of the business can be helpful in solidifying all the components that add value to the business.
Objective values are always set between a willing buyer and seller, but in situations where that option is not available, a business valuator may hold the answer one is seeking to determine “your score”.
If you are considering what your scorecard looks like within your business, feel free to contact us and we can review together.