How can possibly get the right number?
There is no such thing as a right number if we know that all the evaluations are incorrect or inaccurate because all evaluation is just a perspective and anybody’s perspective could be wrong or right depending on where you are or who you are. So, evaluation is just a perspective as somebody says that the painting’s worth is 100 million, somebody says painting worth is a hundred thousand or ten dollars. Who’s to say they’re right or wrong, value is in the eye of the beholder. So if somebody says something is worth this, that’s What it’s Worth.
Most people know what’s the asset worth. They need somebody to put it on paper. Sometimes, they don’t know What it’s Worth and they need to know. Generally, it’s people’s intentions to drive the valuations. So, if somebody needs a valuation of a business for tax purposes then the lowest valuation is possible and if somebody needs evaluation for investment purposes then the highest valuation is possible. So people’s intentions or their purpose is the biggest driver on where the valuations might be.
Is there’s just a flood of business owners that want to know the value of their business?
Valuations are done for a few purposes, and most people think valuation is only done for one purpose. One purpose is when you’re trying to buy something or sell something, kind of a transaction. The second purpose could be accounting, such as if you invested a hundred dollars in a company today, then what might be it’s worth after three months, or after six months, or after 12 months, and that is stated in their books. The third purpose could be insurance.
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For Example: if you appraise the golden gate bridge because it was underwritten by Lloyds of London and Lloyds of London needed to know how much premium to charge They wanted someone to tell them how much the bridge was worth so they could underwrite it. So cities will get insurance for bridges. Imagine you are some hotshot partner at Lloyds of London sitting there and smoking your cigars and enjoying the cash flow all these cities are giving you for underwriting their bridges roads buildings etc. You are watching CNN on September 11, 2001, watching the twin towers come down right and you are like “oh my god I am getting all these large assets in the world I might have to pay this out one day, and do I know what these things are worth.” And they engaged the firm to go around the country and assess all of the country’s major infrastructure assets.
So, for a transaction or accounting or insurance or it could be for taxes. If somebody’s transferring a business or inheriting a business so they need to know What it’s Worth. So, they can pay appropriate taxes.
Valuation is all about the business model so, if you got the right business model then you got a high evaluation.
Also, check our What’s it Worth Youtube channel.