There are a few factors that could make your valuation estimate lower than expected.
Most commonly, the reasoning falls into one of these categories:
- More Data Needed: We need more information to increase the accuracy of your valuation. If you have not already, please complete the Accuracy Check Questionnaire.
- Large Amounts of Debt: Debts that are in the business will affect the valuation estimate. For example, if there is money owing to a shareholder, it is a liability -- and it will suppress the valuation, even if the shareholder that will be repaid is you.
- FMV of Assets: We may not have the Fair Market Value (FMV) of your asset base, only what's listed on your statements. If there is a notable difference in those two numbers, that can impact your valuation. This is captured in the Accuracy Check Questionnaire - and can have a material impact on your analysis.
- Shareholder Compensation: You may be paying yourself more than market wages. While that’s entirely fair and your decision, paying yourself in excess of market wages will suppress the company's profitability. This will impact the valuation until our platform has normalized your wage in our Accuracy Check.
- Recent Downturn in Performance: There is a degree of recency bias in valuation theory. If your business recently experienced a “down” year, your valuation will be impacted. If the business returns to its normal performance in the following year(s) then the valuation will likely increase to become more in line with the historical valuation prior to the “down” year.