Just about everyone has a differing view on the value of a small business. And just about everyone has a different way of forming that view. There can be as much argument about the way a small business is valued as that of the view or opinion formed itself.
Small business valuations are opinions of value that someone can rely upon to make decisions. Estimates, on the other hand, are not. Standards bring a common understanding on the way an opinion of the business value is formed. Standards are critical if a business valuation is to be reliable in order for informed decisions to be made.
Critical in valuing a business are these Standards:
- The Premise of Value. The usual options available are ‘going concern’, highest and best use, current or existing use, orderly liquidation or forced sale.
- Bases of Value. The usual options include market value, investment value, fair value, liquidation value, synergistic value and others.
- Governing Standards of the Valuation Reports. These mandate the breadth and depth of the work to be done in producing valuation reports. The common term used is ‘scope’ of the valuation work to be done.
The way in which an opinion of business value is formed will governed the value determined. Change the Standards and you change the way an opinion is formed. And the outcome will also be different.
Hence, it is important for the parties concerned to agree to the Standards to be applied to valuation work, before the work commences.
If you need more information, talk to us.
Negotia Group
1300-551-757
Disclaimer: The views expressed in this article are those of the Writer. The information is not meant to be exhaustive. Readers are responsible for making their own inquiries and assessments as to the truth and accuracy of all the information given and should seek advice from professionals. No liability (in contract, tort or otherwise) will be accepted for any loss or damage incurred as a result of reliance upon any material contained in this publication or any information or advice provided in this publication or incorporated in it.
Kevin Lovewell
M: 0401 308 385
P: 1300 551 757
E: Click here to contact Kevin Lovewell
Member & Registered Business Valuer
Australian Institute of Business Brokers
Jessica Holbrook
P: 1300 551 757
E: Click here to contact Negotia Group
Business Analyst
