An improper valuation is not fair to both parties. If the selling price is too low, the seller is not properly compensated for their hard work. If the selling price is too high, the investor cannot make a return on investment. SYE avoids these negative outcomes by creating win-win situations that address the needs of both parties.
Often, valuations that are too high or too low prevent a deal from happening before they even start. If a valuation is way too high, many investors will not even give the business a second look.
If the valuation is too low, this can also make investors warry. Just as in the housing market, an extremely low valuation is a red flag that makes buyers believe there is something wrong with the asset.
Low valuations can happen when a seller is very motivated. They could also signify a serious problem with the business. While a low valuation may not be the demise of a deal, it can cause the investor to ask serious questions.
Valuation assigns a fair value to a business using current data on profit and industry standards. Proper valuation is provable and fair to everyone.
Valuations that use common standards and proper multiples is a simple math equation. Either party can explain how they arrived at a certain valuation in a matter of minutes, and they can provide sources to support their view.