Going-Concern Value
IntermediateGoing-concern value is the value of a business as an operating enterprise that is expected to continue running, including the value of its assets working together and its ability to generate future profits.
A business is usually worth more as a working whole than as a collection of separate assets. Its trained staff, customer relationships, supplier contracts, systems, brand and reputation all contribute value that would be lost if the business closed and its assets were sold individually.
For example, a successful restaurant's equipment, furniture and stock might fetch 80,000 in a liquidation. But as a running business, with loyal customers, a strong reputation and steady profits, it might be worth 400,000. The difference reflects its going-concern value.
Most valuations, including discounted cash flow and comparable company analysis, assume the business is a going concern.
When a business is struggling, comparing its going-concern value with its liquidation value helps decide whether to try to rescue it or close it down. If the going-concern value is higher, creditors and owners may be better off restructuring the business than liquidating it. Accounting rules also assume a going concern when preparing financial statements unless there are strong reasons to doubt it.
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