Beauty is in the eye of the beholder: 5 steps to valuating a business
Buying and selling a business is no easy affair and valuating a business is not as straight forward as you might think.
The value of a business is in the eye of the beholder and this value will differ from person to person. For example, the seller will often value the business differently to the buyer. No party wants to feel that they paid too much or were paid too little. Therefore it's key to get the valuation process right. Which leads to one question: What is the valuation process?
These five steps from Peter Howson might help...
Establish the value of the business as a standalone entity.
Add the realisable value of any surplus assets and/or activities that might be split off and deduct transaction costs. Both of these can be considerable but they are often underestimated or even forgotten.
Assess synergy benefits and the costs of realising them (in detail) including any additional investment needed.
Estimate what the business might be worth to other interested parties.
Calculate the "going rate" for the type of business under consideration based on previous transactions and the ratings of comparable companies.
Following these steps will help you to find a balance between the business' worth, the value of the business to the seller and also to the buyer. Keeping everybody happy!
You can find out more on Valuation with this course written by Peter Howson.