Business Valuation In The Changing Global Economy

Business Valuation In The Changing Global Economy

July 27, 2010

While many people tend to think of globalization and the current economic recession as factors that have influenced business valuation greatly, the truth is that business valuation has traditionally started with an assessment of national, regional, and local economic conditions. These evaluations are typically made on or around the actual valuation date, and are meant to focus both on all markets in which the business might operate. In the past, all but the largest of businesses operated on a local and/or regional level, but globalization has changed all that in an irrevocable manner.

This makes the global economic situation worth paying attention to, as well as political factors that were once given short shrift when it came to business valuations. Now businesses valuation reports need to take a look at many factors, such as:

* Political and/or economic stability within suppliers - If supply chains are broken due to the development of internal economies or trade barriers being erected between nations, then a business may find itself at a competitive disadvantage.

* Comparative adjustments - While business valuation used to factor competitors within a similar geographic region, this practice is one that needs to be scrutinized more carefully. Entirely new questions have arrived, such a determining the elasticity of the goods and services being offered versus those offered online or by competitors with global reach.

* Different standards for different industries - Some industries are notoriously prone to law suits, which means that any business valuation will need to consider the possibility of actions/decisions taken prior to purchase as potential liabilities at some point in the future. This can be more complex with companies that produce products under the rules and laws of one country and sell/distribute those products elsewhere, even if the manufacturing is outsourced.

* Income and an unstable dollar - While many currencies are pegged to the US Dollar, that has not necessarily proven as stable as many would like when it comes to determining the value of a business. Debts and other obligations, non-recurring or otherwise, in one currency may be difficult to forecast if the purchase is being handled in another currency. This is a common problem for anyone using an income-based business valuation approach when purchasing a business in another country.
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By : Jonathan Westmoreland