Valuations for Sale or Purchase of a Business | FTI Consulting

Valuations for the Sale or Purchase of a Business

Forensic Litigation & Consulting | Legalwise (Reprint)

May 29, 2019

business meeting

Business owners looking to sell their business may not be able to objectively assess its value, but would naturally want to achieve the highest price during the sale whilst the buyer wants to pay the lowest price possible. So how do both parties come to an agreement? For the seller and the buyer, getting an independent valuation of the business is useful for several reasons.

For the seller, some of those reasons include:

  • establishing realistic expectations of the potential price range that could be bid
  • understanding the value drivers for negotiations between parties down the track
  • identifying issues that may have been missed previously e.g. transactions on non-arm’s length basis
  • tax planning, capital gains tax and accounting purposes

For the buyer it can be more difficult to value the business themselves as they won’t have access to the same level of information and knowledge. If they can access some of the information, a prospective buyer and their financial adviser should calculate the indicative value of the business to determine the indicative price range they would be willing to bid. However without detailed financial information, the buyer will need to make more assumptions compared to the seller and there would be less confidence as to the ‘true’ value of the business.

There is a lot of science and craft in undertaking business valuations, so appointing a suitably qualified independent business valuer can help save on time and unnecessary frustrations during the process, as our valuation expert Fiona Hansen explores in this article.

Republished with the permission of Legalwise. © Copyright 2019. The views expressed herein are those of the author and do not necessarily represent the views of FTI Consulting, Inc. or its other professionals.

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