Six Dangerous Misconceptions About a Valuation Report

Posted by Rock LaManna

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I’m amazed at how surprised potential clients are when I suggest, before any strategies are plotted or any executive coaching is done, that they get a valuation report of their printing business.

“A valuation report?” they ask.  “Why, I’m not going to sell my business.”

You may not be selling your business, that’s true.  But a valuation report can play a much more strategic role in your company than you think.  Here are the top six misconceptions surrounding a business valuation report, and the dangers of believing them:

  1. A valuation report is only for people wanting to sell their company.  This is hardly the case.  I recommend you get an independent valuation every three to five years to give you a solid understanding of how you stand in the marketplace compared to the competition.

  2. A valuation report should be produced by someone your banker or CPA recommends.  I tend to shy away from any type of referrals that could lead to a conflict of interest.  Ultimately, make sure the appraiser is independent of you or your advisory team.  It’s best to get total impartiality.

  3. A valuation report is not industry specific.  This may be partially true if you’re choosing an independent appraiser who doesn’t understand your industry.  But there are appraisers who are familiar with your industry, and can provide you with great comps so you can see how you stack-up against the rest.

  4. A valuation report is something I can do on my own.  There are a number of online resources for people looking to perform their own valuation, but the truth is, no savvy investor will take your numbers seriously.  You need an independent, third-party to objectively evaluate your business.  I recently had a seller send his financials to a potential buyer, who in turn, disregarded them.  The seller had generated them himself.

  5. A valuation report just tells you how much your business is worth.  Yes, the valuation report does give you the bottom line.  But let’s read between the lines:  If it tells you how much you have in assets, then it also shows you a wide-range of tax advantages.  You need this to effectively understand exactly what your position is – why do you think Mitt Romney and Warren Buffett have such a low tax rate?  Because they completely understand their assets.

  6. A valuation report is expensive.  When you consider that it’s not only a deductible-expense, but it’s also the foundation for all your strategic planning and your tax planning, price isn’t the question.  The question is how can you afford not to get a valuation report?

Are you using a valuation report for your business?  Any additional misconceptions (or strategic values) you’d like to add to my list?

Click here to find out what your business is really worth

photo by spcbrass

Topics: Business Valuation