In business valuation terms, the going concern value is the value of a business that is expected to continue generating a positive cash flow for at least the next 12 months. There is a general assumption that the company concern will not want, nor need, to liquidate its assets, nor curtail its scale of operation within this time. This assumption of continuing operation is very important, as without it, a business is only worth its breakup value, and the value of any remaining intellectual property.

The value of a going concern is usually calculated as the combined value of the real estate plus the business operation, and means a business is worth more than simply the book value of its assets because it has the ability to continue earning profit. In some instances however, such as with a petrol station with a forecourt convenience store, for example, it can be very difficult, and actually impractical, to separate the real estate value from the business value. In cases like this, the entire business is valued as a whole.

Going concern value takes into account hard to quantify advantages, such as skill levels of the existing work force, reputation among its customers, successful and established protocols and procedures, licenses and permits, and operational equipment. In accounting terms, this is often referred to as a company’s “goodwill,” and allows the company to include the value of intangible assets and anticipated profitability in its overall worth.

As a potential buyer of a going concern, calculating the value of goodwill can be tricky, but generally speaking it’s calculated by working out the difference between the book value of the assets (such as equipment and stock) and the asking price of the business.

Valuing a going concern falls outside the usual formulae for calculating the value of a business, and it is well worth the time and money to have a professional, objective, third-party valuation expert do it for you. In this way, you will feel confident that the figure arrived at is based on quantifiable criteria and not on the owner’s personal, and often inexperienced estimation.

For objective, professional valuations you can rely on, contact The Property Partnership East Rand on 0860 999 440 or Email: – we’re standing by to help you.