BUSINESS VALUATION
Why Obtain an Independent Business Valuation?
Valuing a business is more of an art than a science and is a complex and painstaking process. Many factors have to be considered in valuing a business, such as future earnings potential, asset analysis, and environmental influences related to economic and industry conditions. To reflect the years of hard work in accumulating a business’s tangible and intangible assets, a business owner must use much more than tax returns and financial statements as the basis for the financial presentation of their business. While using tax returns and financial statements may be good for tax purposes, they do not fully indicate the business’ goodwill or intangible value. Therefore, the value of a business and the price must be justified to potential buyers and subsequently to commercial lenders. An independent and objective evaluation ensures the price presented to buyers is believable, reasonable and well positioned against comparable businesses available in the market. Taxable Events
Taxable events, such as estate and gift planning, also require a detailed business valuation. Unforeseen events can happen at any time, and it is important for a business to be prepared in case the detailed knowledge of an owner or key employee is suddenly no longer available. Financing
Our business valuations are prepared by specialized, independent third parties that have been involved in thousands of transactions on behalf of business owners, business intermediaries, private investment banks and other professional advisers as well as some of the largest SBA lenders nationwide. They provide an objective and expert opinion about the value of a business that complies with SBA guidelines and is recognized by virtually all commercial lenders.
Reasons for a Valuation
Always know the value of your business Sellers wake up one day and say "That's it" - they are burned out or they are having health issues. For many reasons, business owners should always know the value of their business. We can provide an unbiased business valuation. Leave your emotional baggage behind, be realistic and accept the valuation for what it is - a snapshot in time. Many business owners think that blood, sweat and tears increases the value of their company. Unfortunately, that is not the case.
Many business owners think that a buyer should pay them the money they invested in the business, no matter what the business is generating in income and profits. Unfortunately, that's also not the case.
Gap analysis What's really determines the value of your busines? What reduces the the value of your business? or more to the point, what will increase the value of your business? Although the following list is not comprehensive, these are some of the categories you should focus on to increase the value of your company:
- Financial Strength
- Employees and Key Employees
- Vendors and Suppliers
- Repeatable Systems and Processes
- Competition and Differntiation
- Facilities and Location
- Future Business Projections and Outlook
Fair Market Value
Probable price at which a willing buyer will buy from a willing seller when (1) both are unrelated, (2) know the relevant facts, (3) neither is under any compulsion to buy or sell, and (4) all rights and benefit inherent in (or attributable to) the item must have been included in the transfer. FMV is generally the basis for tax assessment and court awards. Also called fair value. See also arm's length transaction. Asking Price vs. Selling PriceIf the asking price is too high buyers may hesitate to even make an offer for the business. A high asking price may place the business outside the maximum price level of buyers looking for similar businesses. And those looking in that higher price range may see that the business does not warrant such a high price. The important factor to understand is that there isn't one magic number that your company is worth. There are a variety of valuation methods used to determine the monetary assessment of a company. Each of these methods will provide a different figure and ultimately, the value of the company is what someone is willing to pay for it. Real World Criteria
The value of a business is usually a function of its earnings not its tangible assets. Depending upon the nature of the tangible assets, it is true that a buyer might be willing to pay more for a business with a lot of assets based on the idea that if all goes badly, the buyer can at least sell off the assets and recover some of the investment.
