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5 Fatal Errors to Avoid When Starting a Business
By Charles Laverty, Jr., ASA, CBA, CFFA
At some point in time, every female business owner will leave her business (voluntarily or involuntarily). Through proper planning, an owner should expect to achieve her desired goals. Statistics show that the value of an owner’s business accounts for over 90% of her personal wealth. However, more than 75% of all business owners do not have a formal transition plan in place.
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The various types of valuation reports produced by a business appraiser can be confusing to an entrepreneur, especially when the appraiser belongs to more than one valuation association. Under most appraisal standards, a business appraiser can produce two types of reports: a detailed appraisal report or a calculation report.
The difference between the two reports is the content and level of information provided. The appropriate report option and the level of information necessary in the reports are dependent on the intended use and the intended users.
The valuation of a controlling interest versus a minority interest within a privately held business can have different values, depending on the circumstance. Due to the inherent differences between controlling and minority interests, the value of a minority interest is not equal to its pro rata portion of the whole. This is a direct result of the application of minority interest and lack of marketability discounts.
One of the most crucial, yet subjective, aspects of any business valuation is determining the specific company risk premium of the business being appraised. The specific company risk premium varies with each company and is intended to be an adjustment to reflect a variety of circumstances inherent in the company and its industry.
