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Valuation of a Business (3)

The Difference between Value and Price When you Want to Value a Business for Sale
  In the valuation of companies where the reason for the valuation is for the re distribution of shares for a Management Buy In, the price conclusion must relate to the market (is the sales market for this type of business up or down?) so that a base price can be determined at that point in time even though there will be no actual “sale” of the business.

Similarly , in a business valuation for divorce where there could ultimately be an external transaction to sell but in some cases one party wants to retain ownership of the business and buy the other party out. In this case both parties want to know the ‘Fair Market Value’ of the business so they can settle even though the business is not actually being sold.

In essence, ‘Value’ can be entirely based on hypothetical theory whereas ‘Price’ in the true sense can only be based on “what the market will pay”.

So What is Fair Market Value (FMV)?
  Contributed by: Value a Private Company.com.au
  About the Author:
  Paul Nielsen is a graduate of Chicago’s Loyola University School of Business Administration and is a Certified Mergers and Acquisitions Advisor (CM&AA).

He holds qualifications in Australia as a Certified Practicing Business Broker (CPBB) from both the REIQ & AIBB, is a Certified Machinery & Equipment Appraiser (CMEA), Licensed Real Estate Agent, Licensed Second Hand Dealer and Accredited Sponsor of the Australian Small Scale Offerings Board.

Paul is a Fellow of the Institute of Directors & Managers (FIDM) and an Accredited Senior Business Analyst (SBA) with the International Society of Business Analysts.

For three successive terms Paul was the elected National President of the Australian Institute of Business Brokers (AIBB) and is an active Member of the Australian Institute of Company Directors. Operationally, Paul has served on the Boards of Publicly Listed and Private Companies as Chairman, Executive and Non Executive Director over a 38+ year period.

Paul lives in Brisbane, Australia and can be contacted on +61 7 3010 9711 or +61 408824122 or by Email at pauln@avantiacorp.com.au

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