Business valuation is a very interesting aspect of accountancy for every party involved. This is down to the scope for subjectivity. The reality is that while there are several standard methods of valuation, and often more than one will be applied in trying to establish an agreeable value, it comes down to a willing buyer and a willing seller and the point at which they can both get what they want.
There are many factors that will impact on the point of agreement. For example I have been looking at acquiring a specific type of business that fits with my overall strategic vision. I found a good possibility but the asking price was far in excess of what I felt that the business was worth. The prime reason was that the business was losing circa £2500 per month so , while that did not eradicate all value it did make it a turn around job. A bit of tactical digging also established that the current position wasn’t sustainable for the owners and they badly wanted out. Sounds bad, but a bit of ‘blood on the walls’ is best not disclosed to a potential buyer… Ultimately a bit of back and forth led to a price being agreed at 1/3 of the original asking price. Both parties happy? Mmm, seller would have preferred more, buyer (me) felt it was potentially still slightly overpriced and the lease was a bit of an issue. Result, deal did not progress as a further waiting game meant that another party came in who was prepared to pay a different value.
Who was right?
I still believe that what I was looking to pay was correct- but that was the value to me. The party who ultimately purchased had a different value and hopefully they had some good advice 🙂 The seller would not have got what they originally asked but probably more than they almost settled for.
The search for me continues.. and valuation remains interesting and elusive.