What is a Business Valuation?
What exactly is a business valuation? To answer this question, consider the following example. Suppose you hold Apple, Inc. stock in your portfolio and you want to know how much it is worth. Well, all you have to do is pick up your smart phone, run your finance app, and look up the price of APPL and multiply by the number of shares you own. Through this simple exercise, you have valued your Apple, Inc. shares or what you would receive in cash if you sold your shares at that current price.
In concept, valuing your privately-held business is the same as valuing APPL stock. However, because your business is private, there is no finance app or newspaper stock table to which you can conveniently turn. This is where we come in, as there is a pseudo-science, or some say an art form, that provides the foundation for skilled business appraisers to estimate what your business is worth. In essence, business valuation is a process and a set of procedures used to estimate the economic value of your ownership interest in a business.
While a business valuation can take many forms, from something as simple as being a discussion topic in a meeting; or providing summary letters and supporting schedules; or providing a full appraisal report. An in-depth appraisal report is subject to rigorous industry standards and analyzes your company’s financial information as well as qualitative factors (industry outlook, management quality, etc.) to determine its fair market value.
What exactly is a business valuation? To answer this question, consider the following example. Suppose you hold Apple, Inc. stock in your portfolio and you want to know how much it is worth. Well, all you have to do is pick up your smart phone, run your finance app, and look up the price of APPL and multiply by the number of shares you own. Through this simple exercise, you have valued your Apple, Inc. shares or what you would receive in cash if you sold your shares at that current price.
In concept, valuing your privately-held business is the same as valuing APPL stock. However, because your business is private, there is no finance app or newspaper stock table to which you can conveniently turn. This is where we come in, as there is a pseudo-science, or some say an art form, that provides the foundation for skilled business appraisers to estimate what your business is worth. In essence, business valuation is a process and a set of procedures used to estimate the economic value of your ownership interest in a business.
While a business valuation can take many forms, from something as simple as being a discussion topic in a meeting; or providing summary letters and supporting schedules; or providing a full appraisal report. An in-depth appraisal report is subject to rigorous industry standards and analyzes your company’s financial information as well as qualitative factors (industry outlook, management quality, etc.) to determine its fair market value.
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