Business Valuation Mistakes

Business Valuation Mistakes

In a constantly fluctuating business market, it is very important for a business enterprise to get a regular business valuation. Having a current business valuation helps to determine what a company is worth today. Besides, it informs the owner about the financial condition of the firm and assists in quick decisions on buying, selling and merger of businesses.

Business valuations are normally prepared by professionals such as business appraisers, business brokers, certified public accountants, financial analysts and economists. Chances of business valuation mistakes are more if business valuation reports are prepared by an inexpert. Mistakes in business valuation reports may affect the accuracy, validity, credibility and reliability of the business appraisal. So, a professional with knowledge, experience and proper accreditations in business valuation must be approached.

The use of a business valuation method that is not accepted by courts is a quite common error in the valuation of businesses. This mistake is frequent with appraisers who are unfamiliar with the practice of family law. Discounted future earnings method, acceptable as a valuation method for certain types of businesses, is not used in valuing a professional practice. Hence, discounted future earnings method can be considered as another error.

Business valuation mistakes may also include the use of valuation methods that do not consider all of the business assets. An appraiser relying on a particular business valuation method should ensure that the selected method can consider all the assets of the business. Application of value multiples to the wrong income stream, omission of certain assets or liabilities and omission of minority discounts may result in business valuation mistakes. Failure to mention the date of the valuation and the date prepared is also considered as a mistake in business valuation reports.

Failure to define the purpose of the valuation and earnings are other common business valuation mistakes. Apart from the above, omission of unique events and failure to adjust goodwill to risk factors earnings may also invite mistakes during the preparation of a business valuation report.

By: Eric Morris

About the Author:
Business Valuation provides detailed information on Business Valuation, Small Business Valuation, Business Valuation Software, Business Valuation Services and more. Business Valuation is affiliated with Home Business Opportunity [http://www.i-BusinessOpportunity.com].

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Tags: Business Assets, Business Enterprise, Business Valuations, Financial Analysts, Types Of Businesses.

Filed under Business by admin on Jul 2nd, 2010. #