There is no inherent value to your company. Another way of saying it is: your company has any number of different values. As a business owner, or stockholder this concerns you directly. How can this be? Think of value as the impression of your company created via the lens of an external stakeholder. Value then is dependent not just on who owns the Lens, but also the type of Lens. Different owners, alternative Lenses, multiple values.
Since the time of Prohibition, the continuous sparring between the different stakeholders in the value of a business has created rules that govern the development of value. The rules standardize the definitions of who owns the Lens, the type of Lens, who can use the Lens under what circumstances and when.
The valuation profession takes cues on implementing these rules from judicial pronouncements, Internal Revenue Service (IRS) Revenue Rulings, Financial Standards Accounting Board (FASB) Standards, and Professional Organizations (NACVA).
The challenge of the valuator is to develop a value that defensibly bridges the gap between the rules around the Lens, and the uniqueness of the image that is your business. So, the next time you look sideways at values based on a 409A valuation, what your investment bank says, and a strategic acquirer offers realize that each used a different Lens that is very well defined, adjudicated, standardized and developed.
For a more in depth discussion of this topic, go to our Collections page and download our Overview.