News & Resources

Busting business valuation myths

Mar 19, 2011 Karen Umpierre

Entrepreneurs coping with daily operations may not have time to take a step back, examine and calculate their company's worth. Sometimes, they simply don't understand how business valuation works. Stanley Feldman, finance professor at Bentley College and chairman of Axiom Valuation Solutions, highlights these business valuation myths and what small business owners can do to bust them. Don't wait until a private business needs to be sold or secure a loan to conduct a valuation. If an owner does not know the value of his or her company, critical business and estate planning issues have been ignored, Feldman writes. Regularly valuing the business will help the current owners ensure the business transitions smoothly to buyers in the future. Just because a local competitor gets a specific price for his or her business, don't assume a similar company will get the same amount later. Economic conditions and interest rates fluctuate regularly, and can have a significant impact on a company's value, Feldman says. Proving a steady cash flow also makes businesses much more attractive to buyers, Inc. magazine reports. Some ways companies can improve their profitability include cutting costs and running sales to generate more business.