Business Valuations
The unpopular truths for small & midmarket business owners.
Whilst valuing a business is an inherently difficult undertaking, it’s a critical step in planning the sale of your business but before you commit to a sizeable business valuation fee, consider these insights and challenges below.
Some of the challenges.
Having worked with hundreds of valuation experts—both in our own business and others—and gained firsthand experience within a valuation firm, we understand the process from both sides. We can guide you through the best approach, whether you need a high-level overview or in-depth support, to help you move forward confidently.
Valuation Supplier, Costs Versus Services. Who, What, How (& Why)?
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The first question regarding a business valuation, we refer to as Who, What & How. Who to select as Business Valuer (& Why) ? What type of valuation should I select (& Why) eg a costly Practitioner led valuation, Mid-Level Professional or simple, low cost automated (AI)? How will they value, eg which valuation model is most suitable & why? There are many distinct models, which we will cover in another article.
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Available budget for the service, as costs differ significantly. Personally we have seen valuation costs range from $3k to over $100k.
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By nature, optimizing a subjective valuation is a subjective art, and the more experience you have on your side of the table, the more likely you are to add another turn or two to your valuation.
Limited Information
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A limited amount of accurate information is available to accurately value small to mid-sized businesses.
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Information on the business and its industry and comparable transactions is limited, biased, unverifiable, or inaccurate.
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The buying valuation team will often look at different metrics & industry benchmarks, to your team, adding more ambiguity.
Prediction of human behaviour & market forces
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The value of a business can be impacted by future events and human behaviour, which are impossible to predict.
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Predicting future cash flow in a business is impractical.
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Predicting the impact of future external factors, such as changes in the economy, human capital or industry, is impossible.
Buyer perception, risk appetite & critieria
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There is a wide universe of potential buyers with diverse criteria
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Perceptions of risk vary across a wide group of buyers.
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Lost opportunity costs vary among buyers, especially for small businesses.
Professional Valuer, Accountant & Advisor Bias
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Biases and conflicts of interest can cloud a business valuer, accountant or advisor’s judgment.
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The structure of the broker’s compensation may affect their opinion
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Appraisers’ unconscious biases cloud their judgment.
And more.
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