Business Valuation

Most business-owners are surprised to learn their business doesn’t have just one value. It has many. The one that is appropriate depends on the following variables:

  1. The purpose of the valuation

  2. The state in which the business is organized

  3. Provisions in the Articles of Incorporation (for corporations) or Operating Agreements (for limited liability companies [LLCs])

  4. Valuation-related provisions contained in an agreement between or among the owners of the business (a.k.a. ‘buy-sell agreement’)

  5. How equity is distributed among owners

  6. The premise of value (i.e., value to whom and under what circumstances?)

  7. The level of value (i.e., control, marketable, marketable or non-marketable, etc.?)

  8. The existence of more than one class of stock (e.g., preferred vs. common; Class A vs. Class B, etc.)

  9. The level of free cash flow in the twelve months preceding the valuation date

  10. Expected near-term growth in annual free cash flows

  11. The risk associated with generating those expected free cash flows

  12. The experience and competence of the professional doing the valuation