There is no “one” value for a business. The value of a business depends on the context. Let’s look at two examples.
If you are transferring your business to your children, you will probably want to minimize the value to reduce the tax burden.
On the other hand, if you are selling to a third party buyer, you want to maximize the value of your business. The best way to get there is to have multiple buyers vying for your business. As you go through the negotiation process with the various buyers, market forces will ultimately determine the value of your business.
Before you take your business to market, you want to have a discussion with a Mergers & Acquisitions Advisory firm like ours to provide you with an expert perspective on the possible value range for your business as well as the current market conditions for your type of business.
We can also help you orchestrate a formal valuation by an independent appraiser. The appraiser would use a variety of methods (asset approach, market approach, discounted cash flows and others) to compute a fair market value for your business. Though the appraised value is not necessarily the price your business will sell for, it will give you an excellent foundation to make the decision whether you should go to market or not.
The use of an independent appraiser also allows you to cross-validate the value range indicated by the M&A advisor.