What is Going Concern Value?
The Short Answer
Going Concern Value explained simply
Going Concern Value looks at a business as a living, breathing entity. It’s not just about adding up the value of its desks and computers. It’s about what the business can do with those assets—how it can make money in the future. This valuation method assumes the business will keep running, keep serving customers, and keep generating profits. It’s the opposite of a liquidation value, which only considers what assets would sell for if the business shut down.
Real-World Example
The Flourishing Bakery
Imagine "The Flourishing Bakery." If you just sold off its ovens, mixers, and display cases, you might get $50,000. That’s liquidation value.
But "The Flourishing Bakery" has a loyal customer base, a great reputation, and a steady stream of income. It’s projected to make $100,000 in profit next year. The Going Concern Value would be much higher, perhaps $300,000, because it accounts for the bakery’s ability to continue making money.
Why this matters
Understanding Going Concern Value is key when you’re buying or selling a business. It helps you see the full picture, beyond just the physical assets. For sellers, it ensures you’re getting credit for your hard work building a profitable operation. For buyers, it helps you assess the true earning potential of your investment.
When we value businesses, we almost always use the Going Concern Value. It’s the most realistic way to see what a business is truly worth to a buyer who wants to keep it running.
When we value businesses, we almost always use the Going Concern Value. It’s the most realistic way to see what a business is truly worth to a buyer who wants to keep it running.
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