The value of a formal valuation

RAY HANSEN
President, AIF

Most owners have an idea of what they think their business is worth. In most cases they have their accountant or trusted advisor work through a valuation formula that gives a “good for now” number. Book Value, Discounted Cash Flow, Leveraged Buyout, EBITDA, Comparable Business and Market Cap are only a few of the currently used methods. Investing in a formal valuation drives many operational and risk mitigation decisions. Effective Buy/Sell Funding, Key Person Insurance as well as Transition and Succession Planning are dependent on an accurate assessment of what an arm’s length buyer will pay. Having a current valuation can be critical when the unexpected occurs. Amid the uncertainty of an owner’s death or the possibility of adding a partner or additional capital is needed for acquisition, a formal valuation defines the process and outcome. ♦