Valuation

A valuation is the process of arriving at a value of a company, or an owner’s equity interest in a company, by a potential investor or a third party professional business valuation expert. Valuations are essentially a way to come up with a price. Small businesses are inherently difficult to value, especially if they are in a new industry that doesn’t have much history or if the company is young and does not have much operating history itself. Business valuation experts often look to valuations of similar companies under similar circumstances to help them come up with proper valuations. Often if the owners of a company jointly hire a third party expert, in order to have him or her properly value the company, then the expert is given a set of agreed upon criteria by those owners – such as the methods that they want him or her to use – to arrive at the proper result. Business valuation experts are consulted in cases of mergers, acquisitions, and company transitions, where one or multiple owners wish to transition the ownership of the company. When outside professional investors are interested in investing in a company, they often have their own internal methods that they use to arrive at valuations.