In the event of a merger, change of ownership and/or financing application, it is important to know the value of the business.
As Vincent van Gogh once said: “I can’t change the fact that my paintings don’t sell. But the time will come when people will recognise that they are worth more than the value of the paints used in the picture.”
In the art sector, the price is determined by a Sotheby’s style auction, for instance. After the Going, Going, Gone! the price is set.
Business valuation is very different. Business valuation essentially means estimating its future free cash flows and discounting by a weighted average cost of capital to arrive at the net present value.
To quote Martin Melenhorst: “Value is a prospective-oriented economically reasoned number”.
Everyone has their own perception of the future and the related risks; any value is therefore, by definition, subjective. This value is supportive during (price) negotiations; hence the price cannot be equal to a value.
Warren Buffett: “Price is what you pay. Value is what you get”.
Valuation is a stand-alone expertise and is completely distinct from any other accountancy or tax expertise. Melenhorst Accountants and Business Valuators have this expertise. With our A to Z expertise, we assist and supervise business succession, business handovers and takeovers, management buy-ins and buy-outs, etc.