AN IN­DE­PEN­DENT VAL­U­A­TION SERVES AS A GUIDE, BUT IT’S DIF­FER­ENT TO PRICE

Finweek English Edition - - MONEY -

The goal of an in­de­pen­dent val­u­a­tion is to de­ter­mine the price at which a busi­ness would change hands in a free and fair mar­ket, where a deal is con­cluded by a mo­ti­vated buyer and a mo­ti­vated seller with all the facts about the busi­ness known to each party. The cal­cu­la­tions that go into an in­de­pen­dent val­u­a­tion are use­ful, and it’s good to al­ways know the cur­rent val­u­a­tion of your busi­ness so you can use it as a long-term man­age­ment met­ric. How­ever, the ac­tual price you get will de­pend on ne­go­ti­a­tion. The best pos­si­ble po­si­tion you, as a seller, can be in is one in which you don’t ac­tu­ally have to sell the busi­ness and prob­a­bly don’t want to, yet have sev­eral com­pet­ing par­ties bid­ding for your busi­ness. Most sales are con­cluded in less-than-ideal con­di­tions – the busi­ness needs cap­i­tal in­vest­ment, the own­ers want to re­tire, some­one is ill, etc. In most cases this lack of pre­pared­ness leads to a buyer’s mar­ket, but this doesn’t have to be the case – you just need to treat your busi­ness as an in­vest­ment.

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