By Paul Wonch, MBA, CPA/ABV, CVA, MAFF
Here at Wonch Valuation Advisors, we do valuations, specifically—business valuations. The International Glossary of Business Valuation Terms defines business valuation as “the act or process of determining the value of a business enterprise or ownership interest therein.” This definition suggests an important distinction between a business enterprise and an ownership interest in a business.
A business enterprise is what most of us think of as the business. It is the combination of people and things engaged in the economic activity of the business. The valuation of the enterprise as a whole constitutes the business valuation. It can be thought of separately from a business’s legal form of organization. When valuing a business to buy or sell, this is usually how we look at it.
A valuation of an ownership interest in a business typically includes consideration of the legal form of the business, such as a corporation, a limited liability company, or a partnership. For example, when valuing an ownership interest in a corporation, we would typically value shares of common stock in the corporation. This is somewhat different from valuing a business enterprise and involves assessing the rights, privileges, and obligations associated with the ownership of the shares. A valuation typically comes from this perspective in legal or tax-related business valuations.
Paul Wonch is the founder of Wonch Valuation Advisors, a leading business valuation and financial forensics firm based in Indianapolis, Indiana.