Why You Should Understand the Basic Concepts of Business Valuation
The everyday concepts of the business world are sales, management,
marketing, accounting, inventory, purchasing, cash flow, borrowing,
customers, vendors, insurance, etc. These concepts are what business
owners, managers and professional advisors deal with on a daily basis.
A much more evasive concept is business valuation. Business valuation
is the process of determining what a business is worth. It is the
estimation of what a buyer would pay for a particular business.
Knowledge of business valuation is not necessary to successfully
start or manage a business, or to be a competent attorney, accountant,
stockbroker or insurance agent. But those having a basic understanding
of value and business valuation will have a tremendous advantage.
For the Business Owner. If you own a business, your business is
likely your largest investment. The quality of your retirement probably
hinges on the proceeds that can be obtained from an eventual sale.
To ensure your money, time and hard work are yielding returns, an
owner of a business should periodically check its value. To plan
effectively, he or she should understand value and be able to constantly
monitor it. Too many business owners accept myth and misconceptions
about business valuation. They obtain rules of thumb from magazine
articles, friends or advisors who mean well but have no real knowledge
of the confusing arena of business valuation. The result is disappointment
and often, disaster.
For the Future Business Owner. You look for opportunity, but how
will you assess it when it comes? Your skills at evaluating opportunity,
and the action you take (or non-action) will have a more significant
financial impact on you and your loved ones than all the other skills
and abilities you possess including: education, experience, character,
work ethic, vision, etc.
For the Professional Advisor.
The success of any advisor depends on the knowledge and benefits
he or she brings to the client. This
holds true for all disciplines, but
especially if you are an advisor to business owners such as an
attorney, accountant or financial advisor.
The goal of the business owner is to
build wealth. A basic understanding of business valuation will
provide a framework from which the advisor
can put himself or herself into the
shoes of the client and help him or her make decisions that build
value – the ultimate service
to any business owner.
For the Employee Striving
for Advancement. Ask any business owner what he most wants from
his employees. He or she will say, “I
want them to think like me”. Whether you are an entry level
employee, middle manager or top executive,
knowledge of business valuation will set you apart from the pack
and position you for advancement.
For the Person Who Desires Wealth. Look at any person that has amassed
significant wealth in a free society,
and he or she will have been great
investors. The only way for anyone to build real wealth is
through investment. Wise investment,
of course. A basic understanding of
business valuation will provide the tools for successful investing
whether in a private business, public company
or non-operating asset.