Business valuation companies use many methods to reach the numbers
Business valuations are not all created equal. One of the most challenging tasks business owners face is defining the Fair Market Value of their business. As one of the leading business valuation companies in NY, PA and NJ, questions regarding the various methods used to determine a fair asking price are raised in our offices again and again,. And, for good reason.
Defining this number is no easy task for a business valuation firm. There are many variables involved, particularly if the firm is complex and has obtained a mid- to large-sized revenue base.
When seeking a certified business valuation, keep in mind that one of the most important concepts is “Goodwill” which can define everything from dedicated customers to long-term business partners. To understand how these relationships are valued, and how the value of a company as a whole is evaluated, it’s important to look at the methodologies used by various business valuation companies. Once this is established, the components can be broken down.
Reliable business valuation firms offer certified business valuation reports
A certified business valuation offers a more in depth, technically accurate indication of a business’s true worth. Only very experienced business valuation firms like A Neumann & Associates offer this type of in depth analysis.
Typically, a company is valued by a multitude of factors, which can be roughly grouped into balance sheet-based and income statement-based categories. Or more specifically, asset-based and cash flow-based business valuations.
If the cash flow-based valuation is less than the asset-based valuation, the owner is usually better off liquidating the company’s assets than selling it as an ongoing concern (setting aside for a moment the discount effect for selling the assets).
Generally, the cash flow based-valuation—based on several different methods of assessing cash flow— will exceed the asset-based valuation. In other words, there is a “premium” above the assets, or the Goodwill.
One issue frequently expressed is the comparison of ratios and Goodwill between a midsized, privately held company and publicly held companies. As a very rough rule of thumb business valuation companies usually assess a price/earnings valuation of privately held companies close to half that of publicly held companies in a similar industry or market sector.
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Contact A Neumann & Associates, LLC
If you are considering selling your business, please contact us to learn more about our comprehensive service spectrum. Our experienced professionals will answer all your questions about selling a privately held business in complete confidentiality. Please to fill out a short form, or call us at (732) 872-6777. We will contact you directly and will never identify ourselves to your employees.