In the world of valuation, all too often, appraisers answer valuation questions with “it depends”. Unfortunately, the answer to the question, “what period of time is a valuation valid?” really is “it depends”.
Let me explain. The value of an interest in a business appraisals is date specific. It is easy to understand that the value of stock changes over time when we look at publicly traded stocks. Rarely do prices remain the same from hour to hour, let alone day to day. While the value of the stock of privately held companies usually do not change so quickly, the value can change.
Events and time can cause the value of a company to change. In fact, most business owners count on the value of their investment in their businesses increasing over time.
So, depending upon the events and trends impact a particular company, the value can change over any given time period. Changes in value can be caused be increases or decreases in sales and profitability, increases or declines in the value of assets owned by the Company, or any one of a number of factors. For example, stock in a company which owns real estate in a market that is recovering from the recession will most likely change in value as the real estate market recovers and the real estate increase in value. The increase in value can be compounded if the company is also recovering and has increased sales a profitability.
There is no absolute estimate for the period of time that a valuation will be valid. If you are relying on an old valuation, the more recent it is, the better the chances are the valuation will be valid. Depending upon what you are using the value for, you may want to consult with your business appraiser to determine if an update is advisable.
If you have questions about this or other valuation matters, please contact me.
©2011 Florida Business Valuation Group
