What’s my company worth? How much should I pay to acquire this company? At Kaplan CFO, we get these questions a lot; typically when business owners are thinking about selling a business.
Unless gifting, tax or legal issues are involved, or valuation needs to be certified, you may not need to undergo the rigorous and sometimes expensive process of a formal valuation. Instead, calculating a simple indication of value may give you all the answers you need.
A basic indication of value is just that, a guide to the owner as to what could be expected when the business is sold or what the prospective purchaser should expect to pay. That guidance will be used to further the negotiations that will take place in any transaction.
Valuing a company will use certain rules and formulas but there is always a subjective element when it comes to establishing the value. Is the company in a unique market space? Is the product maturing or is it brand new? What does the competitive environment look like? Is there a good management team in place to ensure continuing operations? Answers to those and other questions will affect the final price in any transaction.
A short blog cannot contain all of the technical aspects of valuation, but we would like to give the reader some overview of the terms, techniques and processes that are used. We will delve into those in subsequent blogs.
Next up: EBITDA What is it and why is it used in valuations.