Insights | Blog
Industry Expertise in Business Valuations
A question that I am often asked by business owners needing a business valuation is: “Do I need a valuation expert with experience in valuing businesses in my specific industry?” In most cases the answer is no. Business valuation experts know how to value most types of businesses as much of the valuation methodology is the same whether valuing a manufacturing company or a professional services firm. It can also be quite purposeful to go with an individual who brings a background and perspective of working with a wide range of industries. Regardless, the right valuation expert will typically employ three different methods when valuing a company, which include the asset, income and market approaches.
The asset approach analyzes the assets and liabilities of a business to determine value. The income approach derives value from the earnings related to a business. Finally, the market approach utilizes available sales of comparable companies to establish the value of a business. Generally speaking, these three methods are applied in a similar fashion to most companies by the business valuator. A person accredited in business valuation will understand how to apply these methods as he/she has acquired the appropriate knowledge and training to do so.
There are certain instances when industry experience is essential as there may be particular nuisances involved, which would cause a deviation from the typical valuation approaches. Some specific examples include hospitals, emerging technology companies and financial institutions. It is important for those looking to hire a business valuator to ask questions about his/her experience as well as inquire into more specific valuation credentials.
To be sure, where choosing an expert for business valuations is concerned, it is not just about who specializes in what nor who looks the best on paper. Do the due diligence and do the process (and your company) justice.