Valuing a Private Company

Valuing a private company is a potentially complex endeavor. The reason you’re valuing the company will determine the lengths you’ll have to go to in order to get an accurate value.

Tutorial

Before you even begin the process of valuing a private company, you need to outline the reasons you are looking for the value. The reason won’t change the fact that you want to gain an accurate value, but merely the extent you’ll go to in order to get that figure.

If you’ve valuing the property for your own use, you can make more estimates and take figures at face value without documenting the sources. If you plan to borrow money against the business or to use the value in a real estate transaction, you’ll have to be more thorough.

Arguably the easiest thing to value are the tangible assets. A real estate appraisal can give the market value of the property and buildings and an inventory check can give value of the goods on hand. You can get a rough idea of the value of those tangible assets by comparing sales of similar properties in the same area.

The rest of valuing a business becomes contingent on many factors. You have to consider how much the business itself is worth and that becomes a difficult value to assign. If it’s a franchise, you have to consider whether the franchise will be transferable or if a new owner will have to buy back into the franchise, meaning the company is worth more to the current owner than to a new owner.

The final value of a private company is usually a difficult figure to arrive at. Again, if you’re using the figures for you own purposes, a person who is familiar with the business can probably arrive at a reasonable estimate. For those about to buy, sell or mortgage the business, arriving at a value and documenting your findings is probably a job for a professional.