11.8 Conclusion

In this chapter, we have presented an overview of business valuation. The key points are the following:

• Business valuation is a complex and challenging field that offers several methods to choose from, and requires that many decisions be made when applying any method.
• These choices and decisions are typically guided by the purpose of the valuation, the nature of the business being valued, the availability of data, and the skill and expertise of the valuation professional.
• Multiple valuations based on different methods are likely to yield different results. Some analysts choose to average the values to arrive at a composite estimate. Others frame the valuation as a range of values defined by those outcomes that are reasonably consistent with one another, ignoring any outliers. There is considerably more art than science involved in this field.
• Once an initial valuation is completed, consideration should be given to any factors that may lead to an increase (premiums) or decrease (discounts) in the value of the business.
• Start-up or early-stage businesses are especially hard to value, due to the lack of a track record. Expected rates of return on investment are high at this stage, to compensate for the much higher risk that the endeavor will not be successful.

Business valuation for a start-up is often ignored because it is complex and because there is no historical financial patterns to turn to. It is, however, important because of the numerous stakeholders who are interested in the value of the business. It is also significant because it provides key insight into the overall financial structure and the firm’s value proposition.