This is Part One of a Special Series, Maximizing the Value of Your Business.
The topic of business valuation is so complex that any explanation short of an entire book does not do it justice. The process takes into account many variables and requires a number of assumptions. Some of those factors include:
- Amount of cash flow
- Recent profit history (what you accomplished in 2007 doesn't hold tremendous value today.)
- Recurring revenue streams
- Fair market value of assets
- Customer concentration
- General condition of the company (such as condition of facilities, completeness and accuracy of books and records, morale, etc.)
- Market demand for the particular type of business
- Economic conditions
- Ability to transfer goodwill or other intangible values to a new owner
- Future profit potential
These factors determine the fair market value. However, businesses rarely change hands at fair market value. Three other factors that often come into play in arriving at an agreeable price:
- Special circumstances of the particular buyer and seller
- Trade-off between cash and terms
- Relative tax consequences for the buyer and seller , which depend on how the transaction is structured
Fair market value can be defined as the price at which property would change hands between a willing buyer and a willing seller, both adequately informed of all material facts.
CLICK HERE to Read Part Two- Valuing a Business
CLICK HERE to Read Part Three- How Do I Prepare to Sell?