Guides and Articles
Business Valuation Firms: Purpose, Ownership Interests and Valuation Reports
Understand business valuation outputs and distinguish a valuation date, business or ownership interest, asking price and transaction outcome.
Business valuation firms assess the economic value of a business or identified ownership interest. The purpose and subject of the assessment matter. Valuing an entire operation is a different question from examining an identified interest or particular group of assets.
What Is Being Valued?
The SBA describes business valuation as a way to assess a business's worth and identifies professional appraisal as a distinct service. The valuation needs an identifiable business subject and reporting purpose.
A machine's value, a premises value and a business valuation concern different subjects. A business can use equipment and property without its whole value being described by one equipment list. The provider needs to explain which subject the report addresses.
Purpose and Date
A valuation is associated with a purpose and date. A sale enquiry, planning exercise and another defined reporting purpose can ask different questions. An earlier valuation should not silently become a current assessment for a different use.
For example, an owner may have a report prepared for an earlier planning discussion and later consider a sale. Another enquiry may concern a particular ownership interest rather than the entire business. Those differences need to be identified before the report is compared with a sale proposal.
Information, Assumptions and Conclusions
Historical records describe past activity. Forecast information describes a view of the future. Assumptions help define the assessment. A report should make those elements distinguishable so the reader can understand the basis of its conclusion.
Ask what information was considered and which questions remain outside that assessment. A later change in information can raise another review question; it should not be treated as a reason to mix figures from unrelated versions.
Valuation and the Sale Process
Business valuations, sale preparation and transaction discussions have different outputs. A valuation conclusion, asking price and eventual transaction figure are not interchangeable.
A business broker may market an opportunity and coordinate introductions. An accountant may prepare or explain financial records. The valuation firm's assessment is another role.
Common Questions
Is a valuation a promise of the sale price?
No. The assessment and a negotiated transaction have different purposes and circumstances.
Can the same report answer every later question?
Identify its purpose, subject and date before using it in another discussion.
What should an enquiry describe?
The business or interest involved, the reason for the assessment and the records already available. That gives the valuator a concrete reporting question.