The term business value is a broad term that refers to any form of business valuation which determines the financial health and potential of a company. While a purchase or selling price is simply an amount that may be asked to be paid for a 100% ownership of a given business, the intrinsic value of the business is a larger picture representation of what a purchaser or shareholders may expect to receive financially as a result of ownership.
Business Value Factors
There are several factors that should be weighed when considering Business Value for a company. These factors include economic value, employee value, supplier value, customer value, partner value, community/societal value, and managerial value. Additionally, intangible assets such as intellectual capital, goodwill, and brand recognition should also be considered. These factors may not hold an actual numeric value in the financial statements, but they certainly contribute to the business’s overall performance and health.
Determine for Whom the Business is Being Valued
Business Value can vary greatly depending on who will benefit from the analysis. For example, an entrepreneur seeking a business to fulfill personal goals will have a very different perspective than an investor looking for maximum financial growth potential, or a business owner looking to expand their portfolio of businesses.
Similarly, a competing business will value a business at a higher level for reasons such as synergies in resources and operations, administrative cost reductions, and increased market share opportunities post-acquisition.
Choose A Valuation Method
The most common standards of value used in small and medium-sized business valuations include fair market value (monetary amount that a buyer may offer and seller accept in exchange for the business), investment value (the value of a business to a particular business investor or owner), and intrinsic value (the value of the business’s true economic potential).
There are a number of methods commonly used to value a small business. A few of these include:
and other various forms of business valuation formulas.
The intrinsic value of a business is a larger picture representation of what a purchaser or shareholders may expect to receive financially as a result of ownership.
Holly also founded ExitPromise.com and to date has answered more than 2,000 questions asked by business owners about starting, growing and selling a business.
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