A business valuation is useful for a business of any size – and not just if the owner is interested in selling. Rather, a valuation is an important planning tool that can provide a business owner with a snapshot of the company’s performance. This ca
n help the owner develop business performance improvement goals, make crucial decisions like whether to go public or add shareholders, and ultimately, plan for a graceful exit from the business. In order for a valuation to be helpful in these situations, however, it must be accurate.
As we wrote in last week’s post, titled “Machinery and Equipment Appraisals in Buy/Sell Agreements,” a company’s value is based on many factors and if any one of them is valued improperly, the entire valuation will be inaccurate. For example, there are several ways to measure the value of the company’s machinery and equipment: book value, fair market value, and liquidation value. Unless a business is in a liquidation situation, there’s no reason to use this valuation method when determining the value of a business. The book value of a piece of equipment is determined by a depreciation schedule, but doesn’t necessarily provide an accurate picture of how that piece of equipment would do on the open market, which fair market value does. Using book value of machinery and equipment rather than fair market value in a business valuation can skew the results and open a business owner up to the liability that comes with making crucial business decisions with inaccurate information.
Software and instructions for determining your company’s value yourself are easy to find, but they’re no match for the expertise of a certified appraiser. A certified appraiser can help you avoid pitfalls like using an incorrect valuation method and will ensure that the information you use to make your business decisions is accurate. Check out The Asset Accuracy Resource Center for more information about appraisal and valuation services provided by EquipNet.