Business Valuations

Lance Wallach

The Four Most Important Things to Remember When Valuing Your Business

1. There is No Magic Formula
   There is not set formula to determine the price of a business. Two businesses in the same industry in the same location for sale at the same time may not sell for the same price, based on other intangible factors.
2. It is Difficult to Set a Price on Goodwill
   One of the big reasons that it is difficult to find a magic formula for a business price is due to "goodwill." Goodwill is said to be the difference between the appraised value of the assets of the business and the selling price. In other words, it is the value of customer loyalty or the customer list. The new owner may or may not be able to count on customer loyalty or repeat business from current customers, so how does he or she know what to pay for it?
3. There is No Way to Predict the Future
   It has been said that the business you are selling is not the business the new owner is buying, because the business changes in character from the day the new owner steps in. The intangible factor of the owner's personality, and his or her relationship with customers, employees, and vendors, can and will change the business to something new and different.
4. Value is Not Price
   The value of a business, by whatever business valuation method it is obtained, is not the selling price of the business. The price is determined in the market by a buyer and seller coming to an agreement. As Warren Buffett said, "Price is what you pay; value is what you get." They are not the same.

In the end, even if a business valuation is prepared and discussed, the ultimate sales price of the business will depend on many other factors, including those discussed above.

Lance Wallach, National Society of Accountants Speaker of the Year and member of the AICPA faculty of teaching professionals, is a frequent speaker on retirement plans, financial and estate planning, and abusive tax shelters. He writes about 412(i), 419, and captive insurance plans. He speaks at more than ten conventions annually, writes for over fifty publications, is quoted regularly in the press and has been featured on television and radio financial talk shows including NBC, National Pulbic Radio's All Things Considered, and others. Lance has written numerous books including Protecting Clients from Fraud, Incompetence and Scams published by John Wiley and Sons, Bisk Education's CPA's Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small Business Hot Spots. He does expert witness testimony and has never lost a case. Contact him at 516.938.5007, wallachinc@gmail.com or visit www.taxaudit419.com/TaxHelp.html and www.taxlibrary.us

The information provided herein is not intended as legal, accounting, financial or any other type of advice for any specific individual or other entity. You should contact an appropriate professional for any such advice.