Planning to sell your business? A successful sale begins with a solid grasp of business valuation. To get the right price, you’ll have to evaluate your business correctly, and this depends on many factors, from the state of the economy to your business’s balance sheet. Despite the abundance of literature and researches available on the subject, valuations often contain errors and inconsistencies that render the whole process useless. The consequences can be significantly higher when it is the basis of an actual transaction. But there are ways to avoid common errors in business valuation. Minneapolis offers reliable and knowledgeable valuation service providers. Sunbelt Business Advisors work with the most trusted business brokers to offer you service like par your specifications.
Pablo Fernandez and Andrada Bilan classified a collection of 110 errors that financial analysts saw in company valuations. The errors are classified into six main categories to be used for business valuation in Minneapolis.
1. Error in the Discount Rate calculation and concerning the riskiness of the Company
* Wrong market risk premium
* Wrong calculation of WACC (Weighted Average Cost of Capital)
* Wrong calculation of the value of tax
* Wrong treatment of country risk
* Including an inappropriate premium
2. Errors when calculating or forecasting the expected cash flows
* Incorrect definition of Cash Flows
* Errors when valuing seasonal companies
* Errors due to not projecting the balance sheets
* Exaggerated optimism when forecasting the cash flows
3. Errors in the calculation of the residual value
* Using inconsistent cash flow to calculate the value of a perpetuity
* Use formulas that have no economic meaning
* Using arithmetic averages instead of geometric averages
* Calculating the residual value using the wrong formula
4. Inconsistencies and conceptual errors
* Conceptual errors around free cash flow and equity cash flow
* Errors when using multiples
* Time inconsistencies
* Other conceptual errors
5. Errors when interpreting the valuation
* Confusing value with price
* A valuation is valid for everybody
* A company has the same value for all buyers
* Confusing strategic value for a buyer with fair market value
* Asserting that “a valuation is 50% art and 50% science.”
6. Organizational errors
* Valuation without any check of the forecasts provided by the client
* Commissioning a valuation from an investment bank and not having any involvement in it
* Involving only the finance department
* Assigning the valuation to an auditor
Business valuation in Minneapolis is on the rise as the economy recovers and new entrepreneurs enter the market. Contact sunbelt-business-advisors.com to take advantage of their large network of business, in 11 countries, and get your business valuated today!
