Business, Legal & Accounting Glossary
Going-concern value is the value of a company sold as a continuing operation.
When a company is sold intact with the intent to keep it running but with new ownership, the value of the company is called its going-concern value. The reverse situation in which a company’s tangible assets are sold off or the entire company is sold to an entity that discontinues operating the company is called its liquidation value. The going concern value includes the liquidation value as well a company’s intangible assets and thus is usually significantly higher than its liquidation value.
Consider this, if Joe Schmoe of Joe Shmoe’s Tacos decides he wishes to sell his business he has two ways to sell Joe Schome’s Tacos. He can sell its inventory (taco mystery meat, taco shell), its buildings (complete with drive-thru and parking), and other tangible assets (soda machine, taco making equipment, tables, chairs, etc) to one or multiple buyers, this would be liquidation. Or he can sell its operations as a turn-key operation to another party. In the second scenario, the new ownership gets all of the former’s benefits but also gets the existing employees (if they choose to stay), the name brand (Joe Schome’s Tacos is catchy and is well known in the community) and perhaps corporate secrets/recipes (Taco mystery meat recipe!). On the downside, the new ownership would assume all of the previous ownership’s debt and liabilities as well. In this second scenario, all the new ownership usually has to do is get the paperwork in proper order and show up and they have a business. This saves the new ownership considerable time and expense and thus is usually reflected in a much bigger purchase price (the going-concern value) than if the ownership had merely purchased liquidated assets.
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This glossary post was last updated: 6th August, 2021 | 0 Views.