To maximize the value of your business upon a future exit, it is extremely important to have a good understanding of its value today. Valuing a business too low will lead to pricing the business too low, which may increase the chances of “leaving money on the table.” However, valuing the business too high will lead to overpricing the business, which may deter qualified buyers from taking the first step towards the transaction. Fewer buyers mean less competition, which can result in a lower price.
Although many people will tell you that business valuation is not an exact science, the more care, knowledge and detail invested into a valuation, the better the results. While many professionals call themselves business appraisers, not all are equally qualified. Some things to look for in a business appraiser include:
1.) Certification from a credible business valuation association- This signals expertise of the profession and a commitment to continuing education. The most highly regarded certification is the American Society of Appraisers (ASA) and the Certified Business Appraiser (CBA) from the Institute of Business Appraisers (IBA).
2.) Actively involved in business valuation practices-This signals a strong working knowledge of the profession’s principles, theories and ethics.
3.) Actively involved in mergers and acquisitions-A certified appraiser working in a firm that is involved in mergers and acquisitions will bring strong practical “street knowledge” that provides great balance to business valuation theories in the report.
4.) Involved in business valuations and mergers and acquisitions of similar size to your company- Different size transactions involve different considerations. Having experience in the size of your company signals applicability of the above three points to the subject company.
It all comes down to how prepared you want to be when you take your business to market. The more informed you are on the current fair market value and the factors that increase and decrease value, the better your chances at maximizing the value of your company upon exit.
