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Three Key Factors in Business Valuation

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The three key factors are profitability, growth and risk.

Profitability, or more specifically, anticipated benefits will be the most important consideration by investors (i. e., buyers). Anticipated benefits will consider such items as the nature, capital structure, and historical performance.

Growth considerations are generally the expected growth in earnings, along with the anticipated outlook for the business and relevant industry.

Risk is associated with the perceived risk of the earnings stream. Case in point, if the business is in a mature stage and future profits are expected to increase at a slow growth rate – one would consider this an added risk factor. Increasing risk factors decreases value. Just the opposite occurs when you have value drivers, thus increasing value.

How can American Business Appraisers Help?

There is a positive relationship between all three key factors. The greater the perceived risk of an investment, an investor would demand a lower value. After reviewing financial statements, we can usually spot risk factors and value drivers of the investment or business interest. With our initial consultation, there is no cost or obligation to you. We promise you two things; first, to invest a reasonable amount of time to gain an understanding of your specific requirements, and second, our communication will be kept confidential.

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