What do you think my company is worth? How much should I pay for this company? Those are the questions we get when owners are thinking about selling or a purchaser is contemplating an acquisition.
In many these cases, there is no need to undergo a rigorous and sometimes very expensive formal valuation process. Save those efforts when it is needed for gifting, tax or legal issues and the valuation needs to have some certification. Oftentimes an indication of value process can answer the questions without the need for special certifications or citations.
In either case the techniques are the same and the basic fundamentals of the worth of a business come to bear. 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 in 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.