Lucido Global Business Brokers

Lucido Global Business Brokers

Adding Value, Creating Wealth

  • Home
  • About Us
    • About Us
    • Suite of Services
    • Our Team
  • Buying a Business
    • Buying a Business
    • Buying a Business Tutorial
  • Selling a Business
    • Selling a Business
    • Selling a Business Tutorial
  • Visas & Immigration
  • Businesses For Sale
    • Featured Businesses
    • Florida Businesses
  • Blog
  • Contact Us

The Difficult Issues Often Attached to Valuing a Business

By Rod Burns Jan 30

There is little doubt that valuing a business is often complex. In part, this complexity is due to the fact that business evaluation is subjective. The simple fact is that the value of a business is often left to the mercy of the person conducting the evaluation. Adding yet another level of complexity is the fact that the person conducting the valuation has no choice but to assume that all the information provided is, in fact, correct and accurate.

In this article, we will explore the six key issues that must be considered when determining the value of a business. As you will see, determining the value of a business involves taking in several factors.

Factor #1 – Intangible Assets

Intangible assets can make determining the value of a business quite tricky. Intellectual property ranging from patents to trademarks and copyrights can impact the value of a business. These intangible assets are notoriously difficult to value.

Factor #2 – Product Diversity

One of the truisms of valuing a business is that businesses with only one product or service are at much greater risk than a business that has multiple products or services. Product or service diversity will play a role in most valuations.

Factor #3 – ESOP Ownership

A company that is owned by its employees can present evaluators with a real challenge. Whether partially or completely owned by employees, this situation can restrict marketability and in turn impact value.

Factor #4 – Critical Supply Sources

If a business is particularly vulnerable to supply disruptions, for example, using a single supplier in order to achieve a low-cost competitive advance, then expect the evaluator to take notice. The reason is that a supply disruption could mean that a business’ competitive edge is subject to change and thus vulnerable. When supply is at risk then there could be a disruption of delivery and evaluators will notice this factor.

Factor #5 – Customer Concentration

If a company has just one or two key customers, which is often the situation with many small businesses, this can be seen as a serious problem.

Factor #6 – Company or Industry Life Cycle

A business, who by its very nature, may be reaching the end of an industry life cycle, for example, typewriter repair, will also face challenges during the evaluation process. A business that is facing obsolescence usually has bleak prospects.

There are other issues that can also impact the valuation of a company. Some factors can include out of date inventory, as well as reliance on short contracts and factors such as third-party or franchise approvals being necessary for selling a company. The list of factors that can negatively impact the value of a company are indeed long. Working with a business broker is one way to address these potential problems before placing a business up for sale.

Copyright: Business Brokerage Press, Inc.

echoevg/BigStock.com

Categories: Seller Articles

Prev
Next

Featured Businesses

Subscribe to our Newsletter

No worries, your information is safe with us. We hate spam too!

From Our Blog

Ownership Transition Survey Results

January 15, 2021

Mass Mutual Life Insurance produced an ownership transition survey back about a decade ago.  The … Read More »

The Importance of Owner Flexibility

December 18, 2020

You shouldn’t expect to sell your company overnight.  For every company that sells quickly, there … Read More »

Getting the Most Out of Confidentiality Agreements

December 12, 2020

When it comes to buying or selling a business, there is no replacement for a solid confidentiality … Read More »

How to Optimize Your Chances of Selling Your Business

December 5, 2020

The simple fact is that selling your business is likely to be the single most important financial … Read More »

Insights from BizBuySell’s 3rd Quarter Insight Report

November 28, 2020

Most business buyers and sellers are wondering what 2021 and beyond will bring.  BizBuySell and … Read More »

Zeroing in on Goodwill

November 24, 2020

Goodwill is a term that might cause a little confusion for some.  But at its heart, it is a … Read More »

Global Business Brokers

Contact Us

Lucido Global Business Brokers
Keller Williams Coral Gables
550 Biltmore Way PH II A-B
Coral Gables, FL 33134
Office (305) 662-7325
Direct (954) 913-5464
rod@globalbusinessbrokers.net

Adding Value, Creating Wealth

  • Ownership Transition Survey Results
  • The Importance of Owner Flexibility
  • Getting the Most Out of Confidentiality Agreements
  • How to Optimize Your Chances of Selling Your Business
  • Insights from BizBuySell’s 3rd Quarter Insight Report

Join Our Team

Copyright © 2021 Lucido Global Business Brokers
MENU
  • Home
  • About Us
    • About Us
    • Suite of Services
    • Our Team
  • Buying a Business
    • Buying a Business
    • Buying a Business Tutorial
  • Selling a Business
    • Selling a Business
    • Selling a Business Tutorial
  • Visas & Immigration
  • Businesses For Sale
    • Featured Businesses
    • Florida Businesses
  • Blog
  • Contact Us