A Terrific Thought - Value!

We were discussing the value of a privately-held business recently. The discussion evolved around how to price the business for imminent sale. The fascination? There were a number of correct answers! Why?

As you know, value is perceived by each one of us differently. The classic definition is an asset is worth what someone is willing to pay (think Amazon stock). The business owner's definition might be "this is what my company is worth" from a viewpoint of decades of "Blood, Sweat and Tears". A taxing authority has its own unique and unscientific assessment. A valuation specialist approaches it using a specially-trained approach using things like discounted cash flow, comparables, a multiple of EBITDA, etc. A buyer may approach value as what can I afford or what is a good discounted value of this asset and can I grow it exponentially. Further, a 2-dimensional and pragmatic thinker might argue it is worth its intrinsic value.

In summary, there are many correct answers to the academic question. However, the secret may be not so much in value today, but in how the asset gets applied in the future. In other words, it is important to delve into future value of the asset for the existing owner (soon to be Seller) and the strategic Buyer. The asset is a piece of a large puzzle that includes exponential growth through synergy, marketing muscle, leadership, sales velocity, expense management, global expansion, etc. and is applied in a future dimension that, by defintion, is unknown. Using this vision in future time and from multiple perspectives is at the heart of understanding true value.