The Importance of a Business Valuation
The “Buy In” ScenarioThree friends pool their talents and resources and launch a business making widgets. They name their new company Three Amigos Widgets, Inc.
Our course, The Basic “How-To” of Becoming a Business Broker”, teaches how to market and sell businesses.
Become a Professional Business Broker…
The “Buy Out” ScenarioHere’s an example that I’ve written about earlier; a company that we did periodic valuations for before it was acquired by a much larger firm. Four associates started a healthcare company in the United States. Wisely, they had a buy-sell agreement drafted that described what would happen if one of the owners died or became disabled. Even more wisely, they funded that buy-sell agreement with life insurance policies on each of them. They grew their business and it increased in value every year. Fortunately, we were hired to re-value the company every year because one of the partners died suddenly – and the remaining partners had to buy out the deceased partner’s heirs. Because the insurance policies were updated every year to reflect the value of each partner’s share, the policy on the life of the deceased paid out enough to buy out the heirs. If they had not done a valuation in several years, the insurance policy would have been woefully inadequate to buy out the heirs and the remaining partners would have had two choices:
1) They would have to come up with the shortfall out of their own pockets. In this case, that would have meant coming up with almost a million dollars each.
2) They would have taken on new partners – the heirs – that knew nothing about the business and would have driven them to distraction.Business owners must know what their business is worth.
The “Walmart” ScenarioA final example involves a rapidly growing company that we’ll call Velocity Boards Inc. A couple of guys started Velocity out of a garage eight years ago to make high-end skateboards. They built up their business’ reputation for quality and were approached by Walmart and asked to design and manufacture a line of boards for the general market and offer them exclusively to Walmart.
Our course, The Basic “How-To” of Becoming a Business Broker”, teaches how to become a professional business broker.