A business valuation forms the basis for decision-making in various contexts such as in a business sale, or in a merger or acquisition, and others. It also serves as the foundation of planning in strategic, managerial, and operational aspects of a business.
Therefore, it is important to ask the following question.
Does a business valuation have an expiry date?
In our opinion, yes they absolutely do. There are several factors that come into play regarding how long a business valuation is valid for.
Anytime a Business Valuation Analyst conducts a valuation of a business, they utilise data that is dated prior to the valuation date. For example in a public listed or a multinational company, there are several aspects which fluctuate from day to day such as stock prices and foreign exchange rates. The valuation figure will be influenced by the rates going on that day. That is why the total value of such businesses will not be identical on two different days. Similarly for a private company, there are several aspects which are just a yearlong engagement that changes from time to time that affects valuation. These aspects can exist in the form of depreciation, market conditions, raw material costs, consumer trends, etc.
The purpose for undertaking a business valuation is crucial in determining valuation processes, which will ultimately determine the valuation and validity of it.
The company’s performance, current market conditions and the current industry standards needs to be reflected when the business valuation is regularly updated.
Every valuation report contains assumptions that are subjective in nature and they are established on a preset ‘validity period’. All assumptions used in a valuation are subject to inevitable and constant market changes.
Other factors that affect business valuation validity include:
- control percentage change
- management overhaul
- revenue stream changes
- political and legal changes
- purpose of performing the valuation
- economic condition changes
In most cases, we assert that a business valuation has an expiry date, and would be valid for no longer than 12 months.
Speak with a Qualified and Experienced Valuer.