Take a look at a professional business appraisal report and you will see a discussion of the current trends in the industry and expectations going forward. No business operates in a vacuum and economic conditions, especially emerging trends in the industry sector, make a big difference to what a company is worth.
Think about a growing company in an expanding industry with great profit potential and few large competitors who could dominate the market. Compare this to a declining industry controlled by a handful of deep pocketed mega-firms and major regulatory hurdles looming on the horizon.
The effect of such industry trends often far outweighs the overall economic conditions as it has the most direct influence on the company’s ability to compete.
When valuing a business, you need to pay careful attention to the industry trends and analyze how the company plans to rise up to the challenge. This requires a careful review of management, key staff, financial strength of the firm, its product and service competitive position. Your valuation report should help the reader see how the company fits into its market and why it will continue to be successful.
This analysis underlies the assumptions you make when calculating business value. Regardless of the actual methods you use to come up with your business valuation conclusion, the results should be based on sound assessment of the company’s industry and its prospects going forward. Cranking out numbers that ask your reader to suspend disbelief will not cut it.