4.11: Going concern
Prior to commencing work on a valuation report, a CBV will assess if the business is a going concern. As the term implies, a going concern business is expected to continue its operations for the foreseeable future. This suggests that it is feasible to make projections about (a) the business’s future operations and (b) the risks associated with the same, both of which are components of any income-based valuation method.
A business that is said to be a going concern does not necessarily have any goodwill. Businesses may lack goodwill for a variety of reasons; however, this does not of itself mean they are not going concerns. In those cases, they will be valued using an adjusted net asset method, but the value of the assets will be based on a presumption of going concern/ongoing use.
The business valuator’s assessment regarding going concern helps determine the valuation method to be used.
Where a business is NOT a going concern, it is unlikely to have any goodwill and it may be distressed. In these cases, it is likely to be valued using a Liquidation method. The Liquidation method is like the Adjusted net asset method with the exception that the assets will be assumed to be saleable on a liquidation basis, which would normally lead to a lower value than had they been valued on a going concern basis.
Contact MVI for assistance in understanding the going concern aspects of your business enterprise.