The company’s value is the most important indicator among all business measures. Simply because it is the only metric that considers everything related to the business. The emphasis is on everything. Revenue, costs, profit, assets, liabilities, and even the knowledge within the company, which includes know-how, customer, supplier, and employee relationships. Even the relationship with competitors must be evaluated. There is no business-related fact that can be left out if we want an accurate value. This is why business valuation requires strong expertise and professional experience. When this is in place, the owner receives accurate information not only about the value, but also about the reasons behind that value.

Below we outline the most common misconceptions about business valuation.

1. The company is worth what the buyer pays for it.

A fundamental misconception, because what the buyer pays is the price, not the value. And price is determined through negotiation. For example, if someone sells a car worth 10 million HUF for half the price because they urgently need money, how much is the car worth? 5 million HUF? Of course not. That was only the price of the car. Its value remains 10 million HUF.

2. Company value calculators provide accurate results.

Not true. In fact, they should not be used even for estimation. A properly calculated company value includes all business data, results, relationships, and especially knowledge. If any of these are ignored or incorrectly weighted by the calculator, the result will be entirely misleading. The risk is enormous because these tools can completely mislead the user without any responsibility. Their goal is often to collect data from interested users. They should be avoided.

3. Business valuation is very expensive.

Not necessarily. It depends on what the valuation is needed for. We distinguish between two different types of valuation.
The first is the accurate company valuation. This is useful when the owner is the client, because the owner has no interest in providing false information, so there is no need to verify answers. This valuation is accessible to any company, costing only 200,000–400,000 HUF.
The second valuation is the due-diligence-based valuation, which is needed only when someone wants to buy a company and must verify the entire organization to ensure there are no hidden risks anywhere. In other words, the expert performs the same valuation as in the accurate valuation, but verifies every answer as well. This makes the process long and often requires specialists from different fields (lawyer, accountant, engineer, etc.). The lowest price starts at around 700,000 HUF, and the sky is the limit. The result — the company value — must be identical in both cases.
Therefore, it is important to know what type of valuation an offer refers to. If you are selling and the quoted price is suspiciously high, it is reasonable to think someone is trying to push unnecessary due diligence onto you.

4. The company’s value cannot be determined precisely.

Not true. It is entirely possible to calculate any company’s value precisely. Those who claim the opposite usually cannot do it. But that does not mean it cannot be done. It is true that valuation requires strong expertise and practice, and few possess this. Generally, after performing 200–300 valuations, someone becomes a true valuation expert. But even then, it matters which segment the expert has experience in. Valuing a small or medium-sized business is very different from valuing a large corporation. Always make sure the valuer has relevant experience in the company’s segment.

5. Auditors are the best professionals to value a company.

Not true. Auditors are accounting professionals who examine companies from an accounting perspective — because that is their field. But this is not enough, and their valuations often differ significantly from real value, in most cases negatively. Auditors typically do not account for non-financial company values or do so incorrectly. Accurate valuation can only be performed by an economist whose field of expertise and experience is business valuation. In short: an auditor values a company with the same accuracy as a valuation expert would perform an audit.

6. A company’s value can be determined solely from the balance sheet and income statement.

Not true. If a valuer requests only these documents, you should avoid them, because they intend to use no more than 20% of the information needed to determine the value. From these documents alone, the company’s value cannot even be estimated. At best, a very wide range can be identified — which is meaningless, because even a 5% deviation can represent a significant amount in larger companies.

7. You only need to know the company’s value if you want to sell or buy it.

Not true. As mentioned in the introduction, company value is the best indicator of business development. If the company’s value increases, the business is developing. The most successful executives manage their companies based on value. That is, they make only those decisions that increase company value. If we make decisions solely from this perspective, our business will grow.

8. The result of a valuation is just a number.

Not true. A properly conducted valuation must include justification. This is important because it tells management what increases or decreases the company’s value. These factors can then be corrected, increasing the value. It often happens that after receiving the valuation, the client decides not to sell the company and instead eliminates the value-reducing factors — then sells the business 1–2 years later, sometimes at double the price.