Guides and Articles
Business Valuations: Subject, Purpose, Date and Report Meaning
Understand a business valuation and distinguish an ownership interest, underlying assets, valuation conclusion and a sale presentation.
A business valuation assesses the economic value of an identified business or ownership interest for a particular purpose. The subject and date matter. A report about the whole business is different from a report about one asset it uses.
Business, Interest and Assets
A company can use equipment, stock, premises and other resources. An equipment value or property value concerns a different subject from the business as an operating whole. An identified ownership interest is another assessment question.
The SBA describes business valuation as an assessment of a business's worth, including professional appraisal as a service. The report needs to identify the actual subject being assessed.
Purpose and Date
A sale discussion, planning project and another reporting purpose can need different work. An earlier report should not be treated automatically as a current conclusion for another use. The date and question give the report its context.
For example, an owner may have a previous valuation prepared for planning and later consider a business sale. Another enquiry may concern only a specified interest. Both need their purpose explained rather than be reduced to a request for the latest price of the company.
Information and Assumptions
Historical records describe past activity. Forecast information concerns an expected future. Assumptions help define the assessment. A report should keep those elements distinguishable so the reader can understand the basis of its conclusion.
If a later report differs, ask what information, purpose or assumptions changed. A difference between two figures is not fully explained by placing them side by side without that context.
Valuation and Sale Work
Sale preparation organizes information for presenting an opportunity. An asking price belongs to that sale discussion. The valuation conclusion and an eventual transaction figure are different things.
A transaction consultation can identify how the report will be used and which other work is involved. An accountant's records, broker's presentation and valuation firm's assessment have different purposes.
Common Questions
Is a valuation a promise of the sale outcome?
No. The assessment and an eventual transaction have different circumstances and purposes.
Can an asset list stand in for a business valuation?
It describes a different subject. Identify whether the question concerns assets, the whole business or an ownership interest.
Where should I explore the service?
Look at business valuation firms or a genuinely offered valuation service through business brokers, explaining the intended use of the report.