MARKET APPROACH FOR BUSINESS VALUATIONS
Again, a business valuation will utilize three (3) different approaches to analyze and reach a conclusion on the value of your business:
- The income approach
- The asset approach, and
- The market approach
This week we will discuss the final approach – the “market approach”.
In basic terms, the valuator is looking at other similar business to yours and arriving at a value based on the comparison with these other businesses. Business valuators have access, through industry sources that keep data for the sales and values of a number of industries, to a wide variety of comparable market data for a vast number industries and businesses.
The valuator will attempt to narrow down the number of “comps” to use by industry, size, earnings, and geographical area. The valuator will then use these comparable sales of other like business to arrive at a value for your business.
Although a market based approach works extremely well as to valuing the sales price for cars, bicycles or other set commodities that are fairly uniform and standard, it is usually not a great approach for arriving at the value of a business.
Most businesses are unique in some aspect or other and are not easily transferable or sometimes even saleable – none of this is incorporated into the market approach. If you had a “Mom and Pop” convenience store, using market data for 7-11 or Circle K franchises is not really applicable to the circumstances of your business even if they are in the same industry, market and geographic area. People may come to your store just because you are you and the great experience you provide your customers.
If you are contemplating a divorce or already facing the prospect of a divorce and likely valuation of your business, you need the services of an experienced divorce attorney. If you would like to consult with one of our experienced attorneys about a divorce and related business valuation, please call OWENS & PERKINS at480.994.8824 to schedule your free 30 minute consultation.