Business Value

Business value has many meanings. A business also has different business value to different people. Sometimes, a business value is derived mathematically based on a rigid analysis of the business, future plans and the management team. However, other times, a business value is assigned based on the value of similar businesses. There are many types of business values. Each type of business value is based on different areas of businesses and the method in which the business is valued. Below are examples of business values:

Business liquidation value is the lowest value a business can have. The business liquidation value is the value or price the business would get if it were to be sold today, at an auction usually. This type of business value is usually driven by the value of the property rather than the business intangible values.

Business book value is based on the business balance sheet figures. Business book value is also low and it is usually the difference between the business assets and the business liabilities.

Business fair market value is usually higher than the business book value or business liquidation value.

Everyone has a different version of the value of the same business

There are many more types of business values. When it comes to paying taxes, for example, the value of the business is often deflated in order for the business owner to pay less taxes. The business value is, however, inflated so that when the business owner sells for profit, the difference is small, thus incurring less capital gains tax. For tax purposes, many small business owners or sole proprietors heavily deduct business expenses, making the value of the business in the red.

If someone were to hire a few different business appraisers to value a business, the business value of each of the three is usually different from the other two. What a business value is depends largely on the opinion of the business analyst. If the business analyst thinks that the business has a lot of upside potential, the business value he or she recommends often reflects it.

When a bank or lender value a business, they often give it a low value to lower their risk of lending. If the business fails, then the bank will have to seize business properties or sell business assets. The value a financial institution or lender assigns to a business when lending is usually the liquidation value plus a margin that they see fit.