Evaluation of your business is not rocket science! In fact, it’s an act of careful deliberation where “subjectivity” plays a crucial role in determining the gold mine or the dump that your company really is, especially in messy matters of litigation. Multiple factors, some graspable and others ungraspable such as purpose, stage of business, past financials, industry scenario, management and promoters strengths mesh together to determine the true economic worth of your company or another. Often in the general goings of business valuation, one fails to register the significance of the ‘date of evaluation’.
The importance of the date is mirrored in almost all professional business appraisal services, which ensure that the valuation date is placed prominently on its report, so as to make a statement of currency, of relevance, and impact. An IRS Revenue Ruling 59-60 states that valuation of securities is a prophecy as to the future and has to be based on facts available at the required date of the appraisal. It is in a company’s own interest that the date of evaluation is given high importance when deciding one’s own worth to buy or sell or go in for a merger or acquisition.
For one, a small business evaluation or a big one is not constant like the rising sun. The volatility of the stock market is a good indicator that the worth of a company see-saws as public sentiments rise or dip in consumption of its progress or backward takes. For example, a major customer exit could put a kink in a company’s sales and knock its value down, making the date of evaluation important in the final count of evaluation. It is also important that if your company’s business valuation has been based on market approach, comparison with other companies are made on the basis of their current revenues, profits, asset bases or equities. This is because as market sentiments rotate, so do relationships between financial performance and its value. In cases of litigation, a court may decide that business appraisal is conducted at different times. Your business appraisal service may or may not take this up depending on whether he can do the business valuation as per the court’s order. Timely completion of the appraisal will be key to your success.
Even though in general business appraisal services only consider information that was known or knowable on the evaluation date they should take into account information hypothetical buyers and sellers would have known at the evaluation date, after evaluating the circumstances and using acute discernment to determining the appropriate date, which often depends on the purpose of evaluation. Choosing the right date will be the tipping point of success.