As a Minnesota business owner requesting a valuation, finding the most qualified and experienced business advisor in the state to complete the process should be a priority. However, even if you are using a company you trust, it is still important to ask questions and to understand the basics.
There are also some issues that need to be carefully considered as a business owner. Reporting these incorrectly or providing the incorrect information during the business valuation can also alter the results, potentially resulting in the business being inaccurately valuated.
Inaccurately Projecting Future Revenue
While everyone likes to believe that the industry, and market, is on the uptick, being realistic about predictions into the future is important to avoid inflating the price of the business outside of the realities of the market.
An experienced professional broker will have a good understanding of the industry and the market and can assess how accurate the information provided is based on that information.
Not Reporting Capital Needed for Operation
Depending on the specific business valuation model used, the working capital needed to operate the business may be an instrumental factor in the calculations. When a business misrepresents or underestimates this working capital, the business may be valuated higher than it should be.
While this may look great to the seller, a review of the business financials will often reveal this error or omission and can result in the buyer withdrawing or making a much lower offer.
Failing to Consider Capital Needed for Growth
It is impossible to increase production, and presence, in the market without also having additional capital expenditures. This could include the need for more equipment, a larger facility or additional materials. By only reporting the potential revenue increase without the associated capital the business valuation will be incorrect.
Misrepresenting the Future of the Industry
When the business valuation is completed by a person not familiar with the industry, it is easy to overestimate future growth potential and revenue. Minnesota business brokers with their finger on the pulse of the industry will not make these types of mistakes as they can accurately assess the numbers and use them in the calculations.
Remember, the future of the industry can have a positive effect on the valuation, especially in Minnesota. Being able to reflect the true potential will be critical in setting a price for the business that is in the market value but also in the best interests of the seller.
