What is Going Concern Value?

Short Answer

Within business valuation, Going Concern Value is the value of a business that is expected to continue operating into the future (as opposed to being liquidated for its assets). Within real estate appraisal, Going Concern Value is commonly referred to the total value of the real estate plus the business operation.

Definitions

There are multiple definitions for going concern value:

1. “A business having the ability to continue functioning as a business entity in the future. In accounting, a business is considered to be a going concern if it is likely to continue functioning 12 months into the future.” (Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010).
2. “The entity is normally viewed as a going concern, that is, as continuing in operation for the foreseeable future. It is assumed that the entity has neither the intention nor the necessity of liquidation or of curtailing materially the scale of its operations. (IAS Framework 23; IAS 1, 23-24) An operating business. Going concern also serves as a valuation premise, under which Valuers and accountants consider a business as an established entity that will continue in operation indefinitely. The premise of a going concern serves as an alternative to the premise of liquidation.”(Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), IVS Glossary)
3. “The value of a business enterprise that is expected to continue to operate into the future. The intangible elements of Going Concern Value result from factors such as having a trained work force, an operational plant, and the necessary licenses, systems, and procedures in place.” (Source: Appraisal Institute, The Dictionary of Real Estate Appraisal, 5th ed. (Chicago: Appraisal Institute, 2010), Business Valuation Glossary)

What it Means

Within business appraisal, Going Concern Value is most similar to the Market Value of the business operation which includes the assets of the business. Within real estate appraisal, there are some property types and situations where separating the real estate value from the business value can be very difficult and/or impractical. For instance, with fuel stations/c-stores, the real estate and business are very closely tied. Typically, when making a loan for this type of property, a lender will request the total value of the going concern which is to include the combination of both the real estate and business values.

Related Topics

Refer to our Value Vault resource section for additional appraisal definitions and appraisal related topics.