Valuing the Business – Possible Issues

As business valuations are often subject to personal judgement of the person conducting them, it comes as a no surprise that they are difficult and bring many challenges. Moreover, their accuracy sometimes leaves something to be desired. Why? It is because the person valuing the business has to rely on the accuracy of the information provided to them in the first place, so the numbers can naturally get skewed.

Some of the mentioned challenges related to business valuations are:

Product diversity

Companies producing a single product are at a greater risk of being valued lower than companies with multiple offerings.

Customer Concentration

Likewise, small companies relying on a customer or two, may have high time acquiring a higher value of the business due to possible complications resulting from losing one of them.

Intangible Assets

While patents, trademarks and other intellectual properties are very important assets for the company, their valuing is very difficult.

ESOP Ownership

A company owned by employees may have a negative impact on the business’s value for one reason – its management requires employees to vote and thus present an extra layer of difficulty in marketability of the company.

Company/Industry Life Cycle

Businesses operating in an industry that is approaching the end of its lifecycle are a good example – their value is doomed to decline with time.