University of Southern California
The valuation expert plays the role of the detective.He or she must delve through the complexities of a business’ performance; culture; key players and clients; and industry trends to arrive at a fair judgment of its worth.The IRS defines fair market value (FMV) as an amount the buyer is willing to spend and the seller willing to accept, neither under any compulsion to act and with equity to both.
This formula may shadow the very subjective “story” behind a business and its value. What is the mission of the company?What is the culture of the business?Who are the key players?For example, the opinion of a 5% stakeholder in a public company is not, by definition, weighty enough to dictate company decisions.On the other hand, if that same person holds 5% interest in a family business and she is the mother, no one is going to disregard her opinion. More…
The Key to Long-Term Shareholder Value, Part I
by Donald J. Jonovic, Ph.D.
Owners of closely held companies, by experience, inclination, necessity, and, often, personality, tend to focus on the short term. Most available waking hours are absorbed by immediate problems, sudden opportunities, annual profits and cash flows. Fortunately, a successful business can, in fact, be built this way. It happens every day.
Unfortunately, this focus on immediate challenges and rewards is definitely not the way to build the shareholder value of that successful business for the long-term.
Consider how this outlook affects transition. Few would doubt that a smooth ownership and management transition in a family firm can enhance the value of that firm to shareholders and potential buyers. Even so, in companies with a short-term focus, transition (when it’s thought about at all) is seen as an “event” in some distant future: “We’ll get to it when the problem arises.” This is wrong. Companies don’t suddenly decide to have a transition any more than a woman suddenly decides to give birth. Transition is a process. It is a way of going about things. More…