A market valuation is an expression of the expected offer price in a business sale. It assumes the current prevailing economic conditions and political sentiment. It also assumes an adequate demand from prospective buyers with access to capital.
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The market valuation is also a product of strengths and weaknesses in the business. We call them key valuation indicators. Compare the KVIs to the financial statements to justify the valuation. They must align. Information must be accurate, and available in a standard format. The format is very often not standard. That does not diminish the value.
The valuer must draw on experience, exposure to deals, and insight of negotiations. This skill will inform the calculations and their variables.
The market valuation result is what one can expect the Business to sell for, as it is, where it is. It is neither definitive nor prescriptive. It does not take into account the vagaries of negotiation, greed, fear, and force of character. By definition of the balance sheet at the end of a financial period, valuation is also time-dependent.
The market valuation puts a stick in the ground. Use it to plan your next step. It is key to building wealth in your business. Don’t be the pig around the stick which rests above the coals of business transfer.