This Slideshare presentation continues this week’s theme of business valuation. Please be aware that this presentation is over 100 slides! However, I believe it provides the level of detail that is necessary for you to know and generally understand, if you are considering any transaction that involves knowing the value of your business. Although I primarily focus on readying your business for sale or investment, there are other situations when knowing your firm’s business value is highly recommended or even mandatory.
How to Value a Company: Overview
The presentation, embedded below, provides an overview of all those reasons when valuing your business is important, such as the previously noted business sale or investment, but also estate planning, divorce (both marital and business partner), long-term strategic business planning, ESOP (employee stock ownership plan) consideration and maintenance, and employee stock-based compensation. There are several different techniques used, but as shown the video, Three Ways to Value a Company (http://theresourcefulceo.com/2017/03/three-ways-to-value-a-company-video/ ), there are 3 common methodologies. Those are discussed in detail here. Finally, there is something known as the private company discount. When doing comparables to public firms or using a discounted cash flow methodology, there is typically a 40% to 60% discount applied to the purchase price to reflect the fact that it is very difficult to find buyers for the stock; thus, selling the stock will take time. This discount is also often referred to as an “illiquidity discount”.
It is not necessary for you to fully understand all the concepts involved herein, but knowing that they exist and where to obtain that information when you do actually need more details, is important.
Finally, for financial considerations regarding preparing your business for sale or investment, please refer to Increasing Your Business’ Value Before a Sale – Financial Considerations.