| |
| |
Valuation - determine your needs
There are many different firms offering business valuation services, many
CPA's also offer this as a service. There are only a few, though, that for
a reasonable price will offer you the quality of service and the track record
to make the investment worthwhile. The first step is to determine what you
want to achieve with your valuation some examples are:
- Sell your business at the Stand-alone Fair Market Value or at a Strategic
Value
- Provide a valuation for lending purposes
- Plan for a merger or acquisition
- Develop an estate plan to protect your wealth
- Create exit strategies for business owners
- Determine the value of assets and liabilities for a divorce settlement
- Provide litigation support services
- Negotiate an insurance settlement
- Set up an Employee Stock Ownership Plan (ESOP)
It is critical to determine the purpose of the valuation and what the practitioner
will include in the estimate of value. This determination shapes the choice
of valuation method to apply, because different approaches and concepts
may be more appropriate for different purposes and industries.
Selecting - a valuation professional
You want an expert whose training and experience enable him or her to apply
an appropriate methodology and derive a value that is both reasonable and
supportable. You also want someone who has a thorough understanding of the
financial and operational aspects of your business.
The Novars Group can help you select a valuation company with:
- A proven track record of thousands of transactions
- Credibility
- Objectivity
- Sound Judgment
- Commitment to Quality Service
- Reports that comply with SBA Guidelines
Determining - the right valuation
The professional valuation companies we work with regularly are able to
provide the following style of valuation reports:
- An Opinion of Value Report - is to provide an approximate indication
of value based upon the performance of limited procedures agreed upon
by the appraiser and the client. The results can be expressed as a single
dollar amount or as a range. The valuer will only consider limited relevant
information and will perform only a limited analysis. This type of report
is generally used by smaller companies.
- A Limited Scope or Market Valuation Report - is to provide a fair
market value opinion. It is a more extensive analysis: Asset, income
and Market Approaches are considered. Market methods are based on generic
group multipliers. Discounted Future Cash Flows and Discounted Future
Earnings methods may be available; sometimes historical methods only.
Public company comparisons are non-existent, or at best, very limited.
A limited review of business risk factors is performed and the competitive
environment is examined, and there is an abbreviated company description.
This is the most common report to support a business sale and the results
are often used to support the pre-approval of a business for Commercial
financing, thus limiting your need to hold a Seller's Note!
- A Comprehensive or Self Contained Report - is to provide an extensive
analysis. All valuation methods are applied as applicable. Comparable
sales transactions and multipliers for the Market methods are very specific
to the Company's business. Public company comparisons are available
and used when needed. A comprehensive review of the business risk factors
is undertaken, a detailed description of the company and its positioning
is provided, and a review and assessment of the prevailing economic
conditions in the specific industry is undertaken.
How do you measure value?
Would you value these two companies the same?
| Business
Valuation - Is There an Easy Rule of Thumb?
|
| Revenue History
2002
2001
2000
|
Company - A
$12,000,000
$8,000,000
$6,000,000
|
Company - B
$12,000,000
$15,000,000
$18,000,000
|
| Total Debt:
Avg. Equipment Age:
Owner's Cash Flow:
Owner's Vacation:
|
$1,500,000
31/2 years
$1,250,000
6-8 weeks
|
$7,000,000
20 years
$700,000
None-the business can't
work without owner!
|
| Similar
Industry: Similar Customer Base, Same Amount of Revenues |
Revenue:
Net Income:
|
Company - A
$12,000,000
$500,000
|
Company - B
$12,000,000
$500,000 |
Source: National Business Valuation Services, Inc. |
|
