A recent article in the New York Times, “Do You Know What Your Business is Worth? You Should,” reviewed the use of “online valuation calculators” as an inexpensive alternative to providing owners of small companies with a value for their business. These calculators provide formula-based approach to valuation cannot possibly address the subjective nature and “art” of valuations. There are multiple factors to be considered in an “opinion” of value, not the least of which is the purpose of the valuation and numerous subjective factors for which the judgment of an experienced business appraiser is necessary.
However, a more important take-away from this article is the importance of business valuations as a planning tool for the owners of closely-held businesses. As the article observes, most business owners don’t become concerned with a “business valuation” until a transfer of equity is involved, either through the acquisition of the interest of another shareholder — or the business itself. Here are some useful lessons regarding business owners and valuation: