Business Brokers San Diego - How Do Business Brokers Determine the Value of a Business?

Business brokers San Diego and other professionals use different methods to determine the value of a business. Every expert has his own opinion of value. This article is designed to help you understand the different theories that are used by business valuation experts to determine the worth of a business. There are basically three standards of value.

  • Fair Market Value

In the United States, the most widely accepted and recognized standard of value s the fair market value. This is the standard that is used in all the Federal tax matters may it be estate taxes, gift taxes, inheritance taxes or income taxes. According to the IRS, the fair market value is defined as the price at which property would change hands between willing buyer and willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell. Both parties must have reasonable knowledge of the relevant facts.

A business broker San Diego can help with this valuation. This is for the simple fact that he is constantly involved in the buying and selling of businesses.

  • Fair value

The fair value is the statutory standard of value in most states when it comes to dissenting stockholders’ valuation rights. This option focuses on the valuation of a business’ shares. In this case, the worth of the shares that a shareholder has is calculated then the shareholder gets the equivalent value in cash.

By definition, the fair value means that the value of shares immediately before the effectuation of corporate action to which dissenter objects, excluding appreciation or depreciation in anticipation of corporate action unless the exclusion would be inequitable. In other definitions, the fair value is the amount that would be compensate to the owner involuntarily deprived of property. Again, for this to work there must be a willing buyer and a willing seller.

Fair value can also be used in a divorce. The definitions of fair value vary. Experienced business brokers San Diego will, however, help you understand your options.

  • Investment Value

This is also referred to as strategic value. it is the value to a particular investor based on the individual investment requirements as well as expectations.

The premise of value can be broken down further into:

  • Going concern value

This is the value of a business that is expected to continue operating into the future. The value is determined by factors like operational plant, trained work force and necessary licenses, procedure and systems. This is more relevant to service firms like the medical practices.

  • Liquidation value

This is the value at which assets of a business are sold quickly like in an auction.

  • Replacement value

This refers to the present cost of a similar property having the nearest equivalent utility to the property that is being valued.

There are many aspects that are considered in business valuation. It is up to you to find the right business broker San Diego to help with the valuation or to help find the best business valuation expert.

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