Tuesday, May 17, 2022

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Financial Strategies

The value of a formal valuation


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. ♦

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