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Knowing and Understanding the Value of a Business
Consistently keeping track of the business value of your client is a significant CFO Service. Business owners should be kept abreast of the value of their business on a quarterly basis. Business Valuation can be utilized and needed for the following purposes:
- Obtaining financing
- Company is being acquired or merged
- Shareholder buyout or disputes
- Personal Financial Statements
- Employee Stock Ownership Plans (ESOP)
- Litigation or Divorces
- Conversion of Corporate Status from a C-Corp to an S-Corp
- For Estate and Gift Tax Purposes
- For purposes of the business Owners goal setting
- Shareholder Buy and Sell Agreements
CFOs should calculate two different valuations. One such valuation is what I call the Book Valuation. This valuation uses the traditional metrics like sales, EBIT, cash flow and assets. The second valuation that should be made is what I call the Synergy Valuation. The Synergy Valuation is a valuation that a strategic buyer would pay. A strategic buyer is a buyer who is in the same business and will be able to take advantage of economies of scale and synergies. This buyer will probably pay a higher price than the book valuation.
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