Business Valuation

The value of your business? Write down your estimate and that of your spouse. Then pose the question to your closest friends and advisors. You will be amazed at the range of responses. For further amusement, ask each how his/her answer was determined.

Value is the utility, worth or desirability of an asset, right or privilege. All things of value can be generically referred to as assets. In our society, assets are bought and sold with money (no offense to the barter folks). Therefore, value is expressed in dollars. The value that an asset has to any person or entity is simply the amount he or she is willing to pay to obtain it. A business is simply a group of assets.

Business valuation is the process of assigning a dollar value to a business by estimating what someone would pay to obtain the ownership rights. For the most part, an asset or group of assets has value only if it:

An owner of a midsize (30-employee) private company recently asked me, “What is the industry valuation multiple for our industry?”

There isn’t one. At least not a credible one. Some advisors, writers and business owners try to peg a multiple for an industry, but it’s rather arbitrary – even silly. At least for companies with less than, say, $500 million in revenue. Here are the reasons: