In today’s business world, determining the worth of your business is critical to establishing the fair market value of estates for gift tax or succession planning, buying and selling of businesses, family law property division, and to support various forms of litigation.
Is valuation a science or an art form? It’s a bit of both.
Detailed valuations blend the best of both objective scientific methods and independent thinking. The science applied comes from analyzing hard data using proven formulas and trends. The art form comes from taking subjective information and identifying how it will likely drive value either up or down.
In most cases, the process begins with an in-depth exchange of information often facilitated by a comprehensive questionnaire and in-person interviews. The amount of research and the number of calculations that go into valuations are most often driven by the desired outcome. In many cases, an extensive report detailing all of the supporting research, background material, risk factors, industry comparisons and assumptions that were used to come to the value conclusion is required. In other cases, such as a business owner wanting to have an idea of what her business is worth, a shorter, more focused report can be requested.
The outcome of the valuation process is an understanding of the factors that determine worth and a qualified opinion upon which to base critical financial decisions.