Most owners of small businesses believe they know what the company is worth. As they may have worked to build the business, often from the ground up, they feel that their intuitive value conclusions accurately reflect the fair market value of the firm. In many cases, they are biased in their views towards the firm, and therefore, have an inflated sense of value associated with the business. Their value may differ substantially from the value that could be realized in an arms length transaction between a willing buyer and a willing seller. Without a formal valuation of the company, the owners of a small business often have nothing other than a gut feeling to support the value that they attach to the business.
Many are reluctant to hire an independent valuation professional to conduct an initial valuation of the company if they do not perceive the need for one. In many cases, there is little perceived need for the owner of a very small business to have a valuation performed. However, the valuation helps to set reasonable expectations for the business owner who has a preconceived notion of value in their minds. The valuation sets a fair market value that may be realized in a transaction between a willing buyer and seller.