![](\"https:\/\/s3.amazonaws.com\/snd-store\/a\/85249192\/04_12_23_2177546593_bb_560x292.jpg\")
<\/p>\n<\/p>\n
As a business owner, you\u2019ll likely need to have your company appraised at some point. An appraisal is essential in the event of a business sale, merger or acquisition. It\u2019s also important when creating or updating a buy-sell agreement or doing estate planning. You can even use a business valuation to help kickstart or support strategic\u00a0planning.<\/p>\n
A good way to prepare for the appraisal process, or just maintain a clear big-picture view of your company, is to learn some basic valuation terminology. Here are five terms you should\u00a0know:<\/p>\n
1. Fair market value.<\/strong> This is a term you may associate with selling a car, but it applies to businesses \u2014 and their respective assets \u2014 as well. In a valuation context, \u201cfair market value\u201d has a long definition:<\/p>\n The price, expressed in terms of cash equivalents, at which property would change hands\u00a0between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arm\u2019s length in an open and unrestricted market, when neither is under compulsion to buy or sell and when both have reasonable knowledge of the relevant\u00a0facts.<\/p>\n 2. Fair value.<\/strong> Often confused with fair market value, fair value is a separate term \u2014 defined by state law and\/or legal precedent \u2014 that may be used when valuing business interests in shareholder disputes or marital dissolution cases. Typically, a valuator uses fair market value as the starting point for fair value, but certain adjustments are made in the interest of fairness to the\u00a0parties.<\/p>\n For example, dissenting shareholder litigation often involves minority shareholders who are \u201csqueezed out\u201d by a merger or other transaction. Unlike the \u201chypothetical, willing\u201d participants contemplated under the definition of fair market value, dissenting shareholders are neither hypothetical nor willing. The fair value standard helps prevent controlling shareholders from taking advantage of minority shareholders by forcing them to accept a discounted\u00a0price.<\/p>\n 3. Going concern value.<\/strong> This valuation term often comes into play with buy-sell agreements and in divorce cases. Going concern value is the estimated worth of a company that\u2019s expected to continue operating in the future. The intangible elements of going concern often include factors such as having a trained workforce; an operational plant; and the necessary licenses, systems and procedures in place to continue operating.<\/p>\n 4. Valuation premium.<\/strong> Sometimes, because of certain factors, an appraiser must increase the estimate of a company\u2019s value to arrive at the appropriate basis or standard of value. The additional amount is commonly referred to as a \u201cpremium.\u201d For example, a control premium might apply to a business interest that possesses the requisite power to direct the management and policies of the subject company.<\/p>\n 5. Valuation discount.<\/strong> In some cases, it\u2019s appropriate for an appraiser to reduce the value estimate of a business based on specified circumstances. The reduction amount is commonly referred to as a \u201cdiscount.\u201d For instance, a discount for lack of marketability is an amount or percentage deducted from the value of an ownership interest to reflect that interest\u2019s inability to be converted to cash quickly and at minimal\u00a0cost.<\/p>\n \u00a9 2023<\/em><\/p>\n <\/body> As a business owner, you\u2019ll likely need to have your company appraised at some point. An appraisal is essential in the event of a business sale, merger or acquisition. It\u2019s also important when creating or updating a buy-sell agreement or doing estate planning. You can even use a business valuation to help kickstart or support […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[7,14,10],"tags":[8,11,12],"class_list":["post-16583","post","type-post","status-publish","format-standard","hentry","category-articles","category-business","category-news","tag-articles","tag-news","tag-updates"],"_links":{"self":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16583","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/comments?post=16583"}],"version-history":[{"count":1,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16583\/revisions"}],"predecessor-version":[{"id":16584,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/posts\/16583\/revisions\/16584"}],"wp:attachment":[{"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/media?parent=16583"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/categories?post=16583"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.sfw.cpa\/news-and-guides\/wp-json\/wp\/v2\/tags?post=16583"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\n<\/html><\/p>\n","protected":false},"excerpt":{"rendered":"