Small Business Valuation and 8 Steps to Elevate the Valuation of Your Business to the Next Level will be launched globally by autumn 2020, by Consilience Ltd in the United Kingdom.
Small Business Valuation is a book for someone that is looking to get an understanding of what differentiates some business valuations from others. Business valuation is easy when the business partners agree with each other (“are about to get married”), while business valuation can be complicated when the business partners are having a partnership dissolution, which share many characteristics with marital dissolution, which include but is not limited to predatory business characteristics. This book describes common scenarios, where you as a business partner or potential buyer of a business, can detect the red flags, and make what for you is the right decision. Roughly half of the book focuses on business valuation methodology, and the other half focuses on red flags and predatory characteristics within business valuation.
These 8 steps are to be considered as 8 strategies increase the value of your business. All businesses are worth what someone is willing to pay for them, and the purpose of these strategies is to increase the perceived value among the buyers that are willing to pay the most for your business. Not surprisingly, this is likely to end up being one of your competitors, and therefore 2 of the 8 strategies are related to the competition. Of the remaining strategies, 4 of them are directly or indirectly related to mitigating the risks of small business ownership. This book also contains a 9th chapter, that brings up common misconceptions and discusses why seller financing is not among the 8 strategies.
Business valuation is the process of determining the most likely value of the business, in a transaction, where both parties are equally motivated to transact. A qualified valuation of a business should be according to the concept of intrinsic value and include an unbiased normalization of the financial statements. The final calculation of a business appraisal is fairly simple and quick, which is typically what you only get, when ordering an online valuation, without an on-site visit. The process of normalizing the financial statements along with weighing in the different valuation methods against each other, is what requires the most amount of time and competence, by the business valuator. The normalization of the financial statements is typically what affects the valuation the most. A company valuation should only be considered as reliable when it is properly independent and unbiased.
The most common methods for valuing a company are; the market approach, the income approach and the asset approach. They all have their strengths and weaknesses, and their own subcategories. No valuation method is complete enough, to solely be used to value a company.
The market approach doesn’t properly weigh in the profitability or assets of the company, which arguably are the most central aspects when valuing a business. Therefore, most valuations according to the market approach, are not of intrinsic value.
The income approach doesn’t take the assets that the company owns, into account. Therefore, companies with lots of assets get deceptive valuations.
The asset approach doesn’t take the profitability into account. Therefore, profitable businesses get deceptive valuations.
Want to go with a cheaper option or even do the valuation yourself? Nothing is stopping you, but...
You may lose the lawsuit, due to the valuation failing to be waterproof.
You may never settle the conflict, hurting the relationship with your counterpart.
You may get deceived while entering or exiting your partnership.
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