Economic conditions and outlook in business appraisals

Every business valuation relies upon a set of assumptions about how the economic environment will look some time in the future. Once the assumptions are made, the business appraiser can make forecasts for the business being valued.

If you take a look at a typical business valuation report, there is usually a section outlining the economic conditions. This discussion is useful to the extent that it helps the reader understand how the business will be affected by the overall economy in the future.

This is because business valuation is about the expectation of what might happen at some future point. The business earnings forecast can then be made and used as a key input into your business valuation analysis.

You will make the economic conditions section in your business appraisal report more useful if it focuses on what the future economic prospects are likely to be. The remainder of the business valuation should tie these expectations with the business value analysis and calculations. This way the reader can carefully review the economic outlook discussion, spot the assumptions made and see how the appraisal ties it all together with the business value results.

See Valuation Tour