7 Business Valuation Terms You Should Know

At some point as a business owner you will likely need to have your company appraised. In the event you decide to sell or merge the business, create or update a buy-sell agreement, or devise or refine your estate plan an appraisal is essential. To help prevent you from having uncertainties during the appraisal process a good thing to learn is some basic valuation terminology.

Here are some terms you should know:

Fair market value. This is a term you may associate with selling a car, but it applies to businesses and their respective assets as well.

Going concern value. This valuation term often comes into play with buy-sell agreements. Going concern value is the estimated worth of a business that's expected to continue operating in the future.

The asset (or cost) approach. This is one of three common approaches appraisers use to value businesses. It calculates a company's worth by adding up its assets net of liabilities.

The income approach. Is another one of three common approaches to valuing a business. It derives a company's value from its anticipated economic benefits.

The market approach. Is the last of three common approaches. The appraiser will use one or more methods that compare the subject company to similar businesses, business ownership interests, securities or intangible assets that have been sold.

Valuation premium. Sometimes, due to certain factors, an appraiser must increase the estimate of a company's value to arrive at the appropriate basis or standard of value. The additional amount is referred to as a "premium."

Valuation discount. In other cases, an appraiser needs to reduce the value of an estimate based on specified circumstances. The reduction amount is commonly referred to as a "discount."

For more information on basic valuation terms or questions please contact your professionals at Access Companies at 866-722-4715.