A business interest’s value is more than just a number to its owner. It represents years of hard work, sacrifice and investment. Owners often believe they have a clear understanding of their company’s worth. But emotions and optimism about future earnings can cloud their perception. Let’s look at psychological factors that may affect owners’ value perceptions — and why the numbers might tell a different story. Personal circumstances may affect value perceptions Business owners often excel at estimating competitors’ values but tend to overestimate their own companies’ values, largely because that value is tied to their personal net worth. However, an owner’s skills, reputation and experience may not be transferable to a third-party buyer — meaning the business could be worth less than the owner anticipates. Moreover, some...

To determine how much a business is worth, a valuation professional must develop a comprehensive understanding of how it runs. Financial statements and tax returns tell only part of the story. In-person inquiries provide additional insights that can significantly impact value conclusions. Owner and manager interviews If a valuator hasn’t previously toured a company’s facilities, expect him or her to request a site visit soon after being hired. This gives the expert an opportunity to observe business operations and interview company personnel. Depending on the company’s size and the engagement’s confidentiality requirements, the valuation expert might want to talk to managers from various departments in addition to the owner(s) and other top leaders. Interviews typically cover a broad range of subjects, including but not limited to: Operations history, ...

Before you contact a business valuation professional, ask yourself the following five questions to help streamline the valuation process and avoid unnecessary confusion down the road: (1) Who’s hiring the valuator? The party that hires a valuation expert is typically responsible for putting up a retainer and paying the invoices. Attorneys may ask the client to hire the valuator directly to avoid collection issues. However, attorneys sometimes hire the valuator directly to help preserve attorney-client privilege. When businesses are valued for non-litigation purposes, the company (or its owners) typically assumes responsibility for hiring and paying the valuator. (2) What’s being valued? Identify exactly what’s being valued. Provide the valuator with basic information, such as: The company’s name, The type of entity (S corporation, partnership or trust), and The...