Many business owners are reluctant to hire an independent valuation professional to conduct an initial life sciences valuation of the company if they do not perceive the need for one. In many cases, there is little perceived need for the owner of a very small business to have a valuation performed, unless of course the owner plans to leave the business to children, needs a loan from a bank when the company’s assets alone cannot support the loan, or seeks to sell all or part of the business.
The valuation analyst should provide a firm fee quote. A flat fee removes cost as source of anxiety and is preferable to an hourly rate. In a collaborative divorce setting, the business valuation fee may be less than one-fourth (1/4th) of the fees in an adversarial context since there is only one valuation not two and since analytical procedures will probably be agreed-upon and limited and less formal documentation required.
To determine the liquidation value, you first establish the current liquidation market prices for all business assets, except those that can’t be sold (e.g., special equipment, or other assets with no market). From that the outstanding liabilities (mortgages, etc.) are deducted, resulting in a business value if operations were ceased immediately.
Failure to define the purpose of the valuation and earnings are other common business valuation mistakes. Apart from the above, omission of unique events and failure to adjust goodwill to risk factors earnings may also invite mistakes during the preparation of a business valuation report.