It has been a long time since the last post. You could say that doing valuation work has gotten in the way of writing about valuation work. I have been doing valuations for over twenty years now. Things have changed a lot since the early days of valuation.
I should clarify, when I talk about valuation, I am referring to the valuation of privately held businesses. (Public companies are valued in the marketplace all the time.) Privately held businesses are a different story. Their prices have been negotiated for transactions. Formal valuations of private companies mostly arose out of the need to establish value for estate taxes. The modern estate tax in the U.S. dates back to the Revenue Act of 1916. It took until 1959 for the Treasury to issue Revenue Ruling 59-60, which actually explains the foundation for the valuation of privately held companies. Revenue Ruling 59-60 remains one of the most concise and thorough resources for business valuation.
When I first started doing valuation work in the early 1990s, the internet did not exist as we know it today. Many of the resources that were used in business valuation came from books and periodicals at the library. We actually had to drive there and copy the relevant information.
So fast forward to 2013, we have more information available at our fingertips. Sometimes I think it is too much information. However, information without the business valuation experience to interpret it and apply it is useless.
The field of business valuation has grown. Both the body of knowledge and the number of practitioners. So what is the point of these thoughts? It is just as important to have an understanding of how to do a valuation as it is to have the information to do a valuation. Having the data from the transactions does no good if you don’t know how to properly analyze them and determine if the resulting multiple is appropriate.
It is easy to pick a multiple, the hard part is knowing if you picked the right one.
If you have questions about this or other valuation matters, please contact me.
©2013 Florida Business Valuation Group
