There are two possible fixes when assessing the company: the first one suggests that the way to evaluate (the method) should be the same for all companies and, therefore, any property of the company will influence the price, being a matter of negotiation; the second one suggests that firm value is inherent in every type of business and, therefore, although you can use the same valuation models, the different value components depend on each company
This is a very interesting question. Most evaluation models are based on assessments of corporations which do not have the unique personal aspect of a family run/owned firm--particularly one that has been in a family for generations. One could argue that the "name" of the firm, often family name, has value in terms of "goodwill" and as such could be included in the price during negotiations--but there is no modelling that I am aware of that addresses situations like this. IN some cultures famil owned businesses are significant in terms of numbers and this should be addressed--sounds like a great idea for a paper.
Thanks John. I agree with you. Assuming that the Discounting Cash Flows Model is nowadays the utility model more often followed and therefore which should be followed in business valuation, the question that arises is whether its application 'as is' is sufficient to collect the specific aspects of family firm (e.g. socioemotional aspects). Depending on how we answer this question, two options open:
1) Whether the cash flows or the discount rate appear, implicitly or explicitly, the family effect.
2) The family effect is not inherent to the cash flows and therefore becomes part of external elements that should be discussed in negotiations with a possible transaction company.
Of course, a favour would be made to valuators, practitioners and court if we give them a objective model that rid the discounts and premiums.
I agree, it would be helpful if some agreememt could be reached on how to treat this topic as it is both important and significant.
I consider that a thriving family business might have established enormous goodwill that can be captured when valued as a 'going concern'. However to incorporate an emotional value in a Market Value approach might not appeal to an investor if it makes the value significantly higher than comparables.
Where the purpose of valuation is however for compensation in terms of compulsory purchase, compulsory acquisition or land take, then an emotional value is definitely important because the 'willing buyer/ willing seller' relationship simply does not exist and on grounds of equity and fairness, an emotional value can be included.
Such monetary values are likely to be arbitrary and subjective so a technique is required as suggested.
yes... it would be included. "willing buyer / seller" relationship does not exist if same is not included in fair value. but how we can evaluate the emotional value? some one has to derive relationship.
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