Chapter 2
What Triggers a Business Valuation?
In This Chapter
Looking at reasons for buying a business and what they may mean for you
Getting a valuation to appeal to lenders and investors
Knowing what your company is worth before it changes hands
Setting up an exit plan
Business valuation is about as dry a term as you find in finance (admit it — didn’t your eyelids flutter a little when you read this book’s title?). But when you start looking at the reasons people want to value a business, things start to get sexy.
The motivations behind getting a valuation right go beyond finding out whether a mom-and-pop store is worth what Mom and Pop really say it is. Most business valuation efforts are tied to finding a number that describes wealth, no question. But dig a little deeper, and you find some very real emotion behind the process: One person wants to realize his dream of owning a business. Another realizes her dream is failing (or maybe her creditors are trying to convince her that it is). A longtime family company finally runs out of heirs willing to take over, and it’s time for the business to be sold or split up. A husband and wife divorce, and both want their fair share.
Yet business valuation isn’t an idea only for existing companies. It’s also an important concept in buying a new company or developing a business idea. Why? Because if a business doesn’t produce value for customers, suppliers, and owners on a day-to-day basis, it’s just not a business. This chapter discusses ...
