{"id":544380,"date":"2019-04-10T21:22:32","date_gmt":"2019-04-11T01:22:32","guid":{"rendered":"https:\/\/mabusinessadvisors.com\/los-angeles\/blog\/2019\/04\/10\/the-myth-of-fair-business-valuation-when-selling-a-business\/"},"modified":"2019-04-10T21:22:32","modified_gmt":"2019-04-11T01:22:32","slug":"the-myth-of-fair-business-valuation-when-selling-a-business","status":"publish","type":"post","link":"https:\/\/mabusinessadvisors.com\/los-angeles\/blog\/2019\/04\/10\/the-myth-of-fair-business-valuation-when-selling-a-business\/","title":{"rendered":"The Myth of Fair Business Valuation When Selling a Business"},"content":{"rendered":"
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In Divestopedia\u2019s article, \u201c<\/span>The Myth of Fair Business Valuation: What Professional Valuations Don\u2019t Tell You<\/span><\/a>,\u201d author Chak Reddy is quick to point out that the \u201ctype of buyer and method of sale are two important (yet often overlooked) value determinants when finding a starting price for your business.\u201d<\/span><\/p>\n

Reddy brings up some excellent points.\u00a0 One notion in particular that every business owner should be aware of is that there is \u201cNO fair value for illiquid assets.\u201d\u00a0 He points to the fact that between January 2007 and March 2008, the historic Bear Stearns went from a value of $20 billion dollars to just $238 million.\u00a0 In a mere 14 months, Bear Stearns lost most of its value.<\/span><\/p>\n

Additionally, the article points to the fact that business owners often suffer enormously from \u201cdramatic valuation compression.\u201d\u00a0 In Reddy\u2019s view, this compression is the direct result of poor planning and a failure on the part of business owners to select the right advisory teams.<\/span><\/p>\n

Reddy believes that professional valuations can be quite lacking.\u00a0 He feels that they are \u201ccontingent on multiple assumptions,\u201d and that the valuations are only as good as the assumptions upon which they are based.\u00a0 In other words, professional valuations can be limited and flawed.\u00a0 In particular, he points to the fact that two of the most important factors in valuations, future growth rate and operational synergies are \u201chighly subjective and no two views on these topics are likely to be identical.\u201d\u00a0 Summed up another way, valuations are inherently a matter of opinion and perspective.\u00a0 Reddy feels that a seller will be \u201clucky\u201d if the real sales price comes within 10% to 20% of the professional valuation.<\/span><\/p>\n

In the end, as always, it is the market that determines value. It is the acquirer who will determine the value more than any other factor.\u00a0 The perception of the buyer will play a key role in the process and, further to the point, no two buyers will perceive the business exactly the same way.\u00a0 In other words, valuations can be tricky and certainly do involve a personal element of the individual who is appraising the business\u2019 value.\u00a0 Adding to this point, Reddy states, \u201cFrom our experience, the type of buyer and the type of sale skew the valuation to such an extent that it is unwise for a business owner to not be familiar with these variables and their impact before the beginning of the sales process.\u201d<\/span><\/p>\n

Ultimately, finding the right buyer is essential and this is where an experienced Business Broker \/ M&A Advisor can prove simply invaluable.\u00a0 And finding that right buyer may take time.<\/span><\/p>\n

Copyright: Business Brokerage Press, Inc.<\/a><\/p>\n

Successphoto\/BigStock.com<\/a><\/p>\n<\/div>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

In Divestopedia\u2019s article, \u201cThe Myth of Fair Business Valuation: What Professional Valuations Don\u2019t Tell You,\u201d author Chak Reddy is quick to point out that the \u201ctype of buyer and method of sale are two important (yet often overlooked) value determinants when finding a starting price for your business.\u201d Reddy brings up some excellent points.\u00a0 One […]<\/p>\n","protected":false},"author":3,"featured_media":544381,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[97,9,96],"tags":[],"class_list":["post-544380","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-business-broker","category-seller-articles","category-selling-a-business","entry"],"acf":[],"yoast_head":"\nThe Myth of Fair Business Valuation When Selling a Business - 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