It goes without saying that a company’s prospects are affected by the industry it competes in. To be credible, your business appraisal should include a discussion of the industry outlook. This may be more important than the overview of general economic conditions.
The value of a company differs depending on whether it has a strong competitive position in a robust industry or competes in a shrinking industry sector, regardless of how well the overall economy is doing.
A properly prepared business valuation should analyze the industry sector and its growth prospects, along with the company’s ability to compete successfully. Some factors that you would consider here are:
- Industry sector growth prospects
- Consolidation trends
- Financial strength of the firm
- Management team
- Product competitive position
- Customer following
- Employee skill and motivation
Your business valuation report should outline clearly the industry conditions and the company’s position in it, so that your readers will see the reasoning behind your value conclusions.
This, of course, requires that your business valuation analysis include a well considered review of the industry and the place the company occupies. This is groundwork that underlies your selections of business valuation methods to perform the actual number crunching.
For your business appraisal to be convincing, the logic behind the financial numbers and method choices should be based on sound analysis of the industry sector factors.