Business valuations are ‘less important than you think,’ Inc. magazine tells owners

BVWireIssue #119-3
August 15, 2012

“Essentially, this is the problem with business valuations,” says a new article by Inc. online magazine: They take a snapshot of value in time, which may (or may not) have anything to do with the current state of the business—which could be booming or it could be broken. “More important,” the article tells prospective sellers:

A valuation gives you practically no information on how much you may be able to sell your company for. The marketplace, not some academic exercise, determines the true value of your business. No matter what the numbers say, your company is worth what a qualified buyer is willing to pay for it on the day of closing.

Prospective buyers “couldn’t care less” about business appraisals, either, adds Inc. “They evaluate a potential transaction through their own criteria, their own set of conditions and values at that time, and the results of their own due diligence.” The bottom line: “A valuation can be very useful when there is a specific reason for it and a time frame within which to use it. But remember that the state of a company can change pretty quickly. If you’re just starting the process of selling your company, a valuation generally isn’t worth the money and hassle.”

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