✈ January 17, 2018, Avicor Aviation Inc.
Last time we discussed the common misconception that valuing a business is just a matter of plugging some numbers into a formula. While formulas can be part of the process, they do not account for the entire process and alone can easily skew a value. But there are other misconceptions about valuing aviation businesses and today we will discuss some of these.
One of the most common misconceptions about valuing an aviation business is when you should do it. If you were to ask most people, they would tell you that the time to figure out the value of your aviation company is when you are going to sell the business. Yes, that's an important time to determine what the company is worth, but it's definitely not the only time you need to should be thinking about corporate value.
We have discussed this before, but there are many good times and reasons for valuing your aviation business. For example:
If your aviation business is not generating a profit, you may be thinking that there is no point in trying to figure out what it is worth. Taking a closer look at the company however, may reveal that the business has more value that you think. Accounting methods, bonuses, how owners or employees are getting paid, assets, and a myriad of other factors may affect the value of a business. Any of these could initially make it appear that the business has no value when in reality it does. After all, sometimes you can't see the forest for the trees.
Businesses tend to grow and change over time. Just like the value of your house can change over time, increasing because you renovated the kitchen, or decreasing due to economic conditions, how much your business is worth can change. Maybe you have added services or staff. Perhaps there are changes taking place in your sector of the aviation industry, or your local economy. And how long ago did you take a look at that value? Getting a read on the current value can make it easier to make decisions about your business and facilitate future planing.
So someone you know sold what you perceive is a similar business and you have some idea how much it sold for. At least you have some idea of the cash part of the sale. But just because another aviation business was worth a certain amount does not mean that yours is worth around the same number. Your business could have more or less debt. You could own an asset the competition did not. Maybe their market differs from yours when you start looking closer. Perhaps they operate more efficiently than you do. Maybe the sales transaction involved more than just cash and the real price was considerably different than it looks from the outside. Just because another aviation business has a certain value in no way means that yours is worth approximately the same amount.
Knowing how much your business is worth is a bit like taking a look at your bank account to know how much is in there. Knowing allows you to plan. It allows you to make decisions, whether those decisions are to wait and build up what is in that account, spend a portion, or apply for a loan. Knowing the value of your aviation business is establishing the baseline for moving forward. It might be time for you to consider finding out how much your aviation business is worth.
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