
Unraveling the Complex Realities of Valuations
The Art and Science of Business Valuation: Key Factors to Consider
Determining an accurate business valuation is a complex process that requires careful consideration of multiple factors. At Indiana Equity Brokers, we understand the intricacies involved in valuing a company and the impact it has on mergers and acquisitions (M&A) transactions.
Ownership Structure and Employee Stock Ownership Plans (ESOPs)
The ownership structure of a company plays a crucial role in its valuation. Companies with employee ownership, such as those with Employee Stock Ownership Plans (ESOPs), may face unique valuation challenges. While ESOPs can affect marketability, they also offer potential benefits that should be carefully evaluated during the valuation process.
Intellectual Property and Intangible Assets
Intellectual property (IP) is a vital component of many businesses’ value. Assessing the worth of patents, trademarks, and copyrights requires specialized expertise. At Indiana Equity Brokers, we have experience in valuing these intangible assets to provide a comprehensive assessment of a company’s worth.
Technological Advancements and Industry Disruptions
In today’s rapidly evolving business landscape, technological advancements can significantly impact a company’s valuation. Businesses must stay ahead of industry disruptions to maintain their value. Our team at Indiana Equity Brokers analyzes market trends and technological developments to provide accurate valuations that account for potential future challenges.
Product Diversity and Customer Base
Companies with diverse product portfolios and broad customer bases often command higher valuations. We assess the range of products and services offered by a business, as well as its customer concentration, to determine a fair and accurate valuation.
To learn more about the factors affecting business valuations, visit the International Business Brokers Association (IBBA) website.
The Importance of Professional Guidance
Valuing a business requires a delicate balance of analytical skills and industry knowledge. At Indiana Equity Brokers, our experienced M&A advisors can help navigate the complexities of business valuation, ensuring a thorough and accurate assessment for your company.
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How Does Your Business Compare?

When considering the value of your company, there are basic value drivers. While it is difficult to place a specific value on them, one can take a look and make a “ballpark” judgment on each. How does your company look?
Value Driver | Low | Medium | High |
---|---|---|---|
Business Type | Little Demand | Some Demand | High Demand |
Business Growth | Low | Steady | High & Steady |
Market Share | Small | Steady Growth | Large & Growing |
Profits | Unsteady | Consistent | Good & Steady |
Management | Under Staffed | Okay | Above Average |
Financials | Compiled | Reviewed | Audited |
Customer Base | Not Steady | Fairly Steady | Wide & Growing |
Litigation | Some | Occasionally | None in Years |
Sales | No Growth | Some Growth | Good Growth |
Industry Trend | Okay | Some Growth | Good Growth |
The possible value drivers are almost endless, but a close look at the ones above should give you some idea of where your business stands. Don’t just compare against businesses in general, but specifically consider the competition.
As part of your overall exit strategy, what can you do to improve your company?
© Copyright 2015 Business Brokerage Press, Inc.
Photo Credit: kconnors via morgueFile

How Does Your Business Compare?
When considering the value of your company, there are basic value drivers. While it is difficult to place a specific value on them, one can take a look and make a “ballpark” judgment on each. How does your company look?
Value Driver | Low | Medium | High |
---|---|---|---|
Business Type | Little Demand | Some Demand | High Demand |
Business Growth | Low | Steady | High & Steady |
Market Share | Small | Steady Growth | Large & Growing |
Profits | Unsteady | Consistent | Good & Steady |
Management | Under Staffed | Okay | Above Average |
Financials | Compiled | Reviewed | Audited |
Customer Base | Not Steady | Fairly Steady | Wide & Growing |
Litigation | Some | Occasionally | None in Years |
Sales | No Growth | Some Growth | Good Growth |
Industry Trend | Okay | Some Growth | Good Growth |
The possible value drivers are almost endless, but a close look at the ones above should give you some idea of where your business stands. Don’t just compare against businesses in general, but specifically consider the competition.
As part of your overall exit strategy, what can you do to improve your company?
© Copyright 2015 Business Brokerage Press, Inc.
Photo Credit: kconnors via morgueFile
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Valuing the Business: Some Difficult Issues
Business valuations are almost always difficult and often complex. A valuation is also frequently subject to the judgment of the person conducting it. In addition, the person conducting the valuation must assume that the information furnished to him or her is accurate.
Here are some issues that must be considered when arriving at a value for the business:
Product Diversity – Firms with just a single product or service are subject to a much greater risk than multiproduct firms.
Customer Concentration – Many small companies have just one or two major customers or clients; losing one would be a major issue.
Intangible Assets – Patents, trademarks and copyrights can be important assets, but are very difficult to value.
Critical Supply Sources – If a firm uses just a single supplier to obtain a low-cost competitive edge, that competitive edge is more subject to change; or if the supplier is in a foreign country, the supply is more at risk for delivery interruption.
ESOP Ownership – A company owned by employees, either completely or partially, requires a vote by the employees. This can restrict marketability and, therefore, the value.
Company/Industry Life Cycle – A retail/repair typewriter business is an obvious example, but many consumer product firms fall into this category.
Other issues that can impact the value of a company would include inventory that is dated or not saleable, reliance on short contracts, work-in-progress, and any third-party or franchise approvals necessary to sell the company.
© Copyright 2015 Business Brokerage Press, Inc.
Photo Credit: DuBoix via morgueFile
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Two Similar Companies ~ Big Difference in Value
Consider two different companies in virtually the same industry. Both companies have an EBITDA of $6 million – but, they have very different valuations. One is valued at five times EBITDA, pricing it at $30 million. The other is valued at seven times EBITDA, making it $42 million. What’s the difference?
One can look at the usual checklist for the answer, such as:
- The Market
- Management/Employees
- Uniqueness/Proprietary
- Systems/Controls
- Revenue Size
- Profitability
- Regional/Global Distribution
- Capital Equipment Requirements
- Intangibles (brand/patents/etc.)
- Growth Rate
There is the key, at the very end of the checklist – the growth rate. This value driver is a major consideration when buyers are considering value. For example, the seven times EBITDA company has a growth rate of 50 percent, while the five times EBITDA company has a growth rate of only 12 percent. In order to arrive at the real growth story, some important questions need to be answered. For example:
- Are the company’s projections believable?
- Where is the growth coming from?
- What services/products are creating the growth?
- Where are the customers coming from to support the projected growth – and why?
- Are there long-term contracts in place?
- How reliable are the contracts/orders?
The difference in value usually lies somewhere in the company’s growth rate!
© Copyright 2015 Business Brokerage Press, Inc.
Photo Credit: jeltovski via morgueFile
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