When we are making an important decision, it pays to do your research. And if we’re talking about a financial investment, most of us will do our sums first. It’s important to make sure it’s a wise move. But often we need objective expertise – and an unbiased opinion. In this case, it’s smart to call in professionals.

While some valuations are fairly simple, others have many layers to them. There are many reasons why people need business valuations. These reasons – and their results – can impact everyone involved. Getting the value wrong can have serious consequences. It affects sales and acquisitions, tax compliance, and disputes.

Each business has a unique set of metrics for determining its worth. Are you involved in any of the following?

  • Estate or gift tax filing
  • Dispute resolution
  • Merger & acquisition Shareholder buy-sell transactions
  • Employee Stock Ownership Plans
  • Exit strategy planning
  • Business acquisition financing

What makes one business valuable might not make any difference in another industry. The word “value” is not specific enough when we are talking about the valuation of a business. Therefore, different standards of value are used depending on the purpose of the valuation.

What are these standards of value?

Fair Market Value

This is defined as the price of exchange between a willing buyer and a willing seller. Both parties have a good knowledge of the facts. This is most often used for income and estate tax purposes and is commonly used here in South Africa.

Fair Value

This is not the same as fair market value, as it deals with a legal value. It is most often used in cases dealing with divorce, shareholder dissension, and other litigation. It usually does not involve willing participants – and an objective outside opinion is needed.

Investment Value

Often used in mergers or acquisitions, this represents the value to a particular buyer with a specific requirement. This valuation will look at what the buyer’s expectations are and how this would look once the businesses are combined.

Book Value is not a standard of value. It seldom represents economic value and is basically an accounting concept.

Taking all these factors into account, you can see how the correct standard of valuation needs to be used. The results of the valuation will vary widely and can be dismissed if these factors are not taken into account.

All too often people ignore the reasons for a valuation. This is exactly why you would rely on a professional team to get the numbers right – without bias.

The Property Partnership are registered with the SACPVP. This means that our clients’ information is treated with complete confidentiality – and with the utmost professionalism. You have recourse if you have any questions as to the integrity of our report.

We look forward to working with you and putting our decades of experience into action. For all your valuation needs please call us on 0860 999 440 or visit www.property-partnership.co.za.