Business Valuation Blog | Understanding Buying / Selling a Company

A Business Owner's Guide to Selling a Business in 2019

Posted by Business Valuation Specialists LLC on Mar 8, 2019 8:00:00 AM

business_sale_valuation

If you're considering selling a business in 2019, have you considered all the factors that come into play in maximizing your profit? If you've put years of equity and your own personal effort into building a company, isn't it worth putting a little more effort in this year to make sure you're getting everything it's worth? This guide will help you make the most of your business sale by showing you how to go about that process to ensure you're getting everything you can from your business.

A Business Owner's Guide to Selling a Business in 2019

  • Consider why you're selling. Are you selling because you're in a desperate situation with your company? If you are, it may not be the best time to sell to maximize your value. Consider alternatives such as bringing in fresh talent to turn the business around or provide additional support while you work through a health crisis or family issues. This may make it easier to keep your business and make it profitable again.
  • Start the sale process by getting your paperwork in order. Is your bookkeeping up to date and accurate? Are your assets accurately portrayed in terms of value in your books? Do you need to update other documentation, such as who is in charge of which portions of your business or your business processes in your manual? Make sure that this paperwork is up to date and ready for any potential buyers.
  • Deal with any obvious problem areas. If you have a large portion of bad debts, consider calling them in, writing them off or using an outside agency to collect on them. Do you have old equipment lying around that needs to go? Get it sold first. Only when you've dealt with these issues is it time to consider talking to a professional.
  • Have a business valuation performed to find hidden value potential. When you work with a business valuation specialist, they prepare a report that includes areas where your company is strong and where it is weak. Make sure you work with a certified valuation specialist to ensure the accuracy of the information.
  • Improve the areas recommended on the report. Once you've received the report and have clarified any areas where it may be inaccurate, start acting on the areas where your company is weak to improve them and solidify the areas where it is strong to retain the value they provide to your bottom line.
  • Get a secondary business valuation report prepared. Once the improvements are made, have a secondary report developed so that you can make sure you've maximized your company's potential value. It's only at this point that you should ask for recommendations for a reliable, reputable broker and interview the best to find the right fit. 

By taking the time to go through these steps, you can ensure that selling a business in 2019 is as painless a process as possible while maximizing your company's potential for profitability in the sale. Don't assume that simply listing your company for sale with no further preparation is in your best interests, but use the advice of a certified business valuation specialist to make improvements that will have a real impact on your final sale price.

Tags: Business Sale Valuation

What's Different When Valuing a Printing Company?

Posted by Business Valuation Specialists LLC on Feb 22, 2019 8:00:00 AM

Valuing a Printing Business

 

Every day, businesses are appraised to determine their value for a wide range of purposes. However, valuing a printing company can be a very different situation, because they have a number of aspects that are different from other businesses. These factors can make a huge difference in the final value that is determined in your company. But what are these factors and how do they impact your company's overall value? Here's a quick look at the overall process and what factors are different.

 

What's Different When Valuing a Printing Company?

  • No two printing businesses are the same. For that reason, it's important that all of the aspects of your business be carefully considered by the business valuation specialist before they can calculate the value of your company. This process takes a certain amount of time while every factor is considered, including market share, annual income trends, innovations within the company, community goodwill and much more.
  • Smaller printing companies with a solid, defensible niche may see a higher level of profitability due to that level of specialization. This is quite often reflected in an overall higher value, but other factors will come into play when the total value of the business is calculated by the valuation specialist.
  • What's the size of your printing business? Generally speaking, larger commercial printers tend to have a much higher calculated value because they take on larger jobs, have a lower overhead cost, are able to procure supplies and equipment at lower costs and have a larger production turnaround on an annual basis.
  • Printing companies tend to hold a higher value because they have a higher amount of profitability over time. Printing companies with profitability between 10-15% tend to be valued at higher rates because this level of profitability is considered desirable by prospective business owners, making them more likely to spend more to acquire a printing business than similar service companies.
  • What is your printing company's industry segment? At current, lithographic printing companies make up the largest segment of the market and still have good growth prospects. However, that doesn't mean you should turn your back on digital printing, a segment of the industry that is seeing strong growth as more and more businesses push towards digitization and more flexible operations.
  • Because of the strong need for printing services, printing companies have a low customer concentration. This means that you probably have a large number of smaller clients, rather than a few large clients. This particular makeup, specifically focusing on having no more than 10% of your total revenue tied up in your top five customers, helps to maximize your overall business value. If one or two clients have a rough year, the others take up the slack.

As you can see, there are a wide range of differences when valuing a printing company that must be taken into account when trying to determine that business' value. When you work with an appraiser to determine your printing company's value, you need to make sure that the appraiser knows their business. Working with a certified business valuation specialist ensures that the appraiser has the experience, expertise and knowledge to get the job done correctly the first time, using practical calculations that have been developed through practical methodologies and tested in a wide range of situations.

Tags: Valuing a Printing Company

The Craftsmanship Involved in Valuing a Craft Brewery

Posted by Business Valuation Specialists LLC on Feb 11, 2019 8:00:00 AM

Craft Brewery

When your business is brewing, it's easy for your daily operation to take you away from considering the value of your business. But valuing a craft brewery is a difficult process at best, one that involves art, science and a certain amount of craftsmanship. But exactly how is a craft brewery different than other types of businesses and how will those factors impact your bottom line when you're dealing with a tax agency, court case or selling your company? Here's an in-depth look at the process and how microbreweries are different than other businesses.

The Craftsmanship Involved in Valuing a Craft Brewery

Microbreweries have been showing up more and more recently, with the paradigm shift in our society placing more value on quality over quantity. This shift has brought these types of food service businesses into the limelight and made them popular in terms of both market share as well as value. This is among the reasons why it's vital that when you have your craft brewery valued that you use a certified business appraisal specialist to handle the process.

Think about it for a minute. Restaurants have been around for centuries, so determining value is fairly straightforward, though it can still be miscalculated by the average real estate agent or other individual who has not been through the stringent training process that certified appraisers have been through. However, microbreweries are a newer iteration in the industry. The various factors that will impact their value are still being determined to a certain extent, and only business valuation specialists who go through training and updated education to stay on top of these factors are able to provide an accurate valuation of your business.

Among the aspects that are impacting craft brewery values are intangible assets. These are specific aspects of a business that do not have a direct, tangible value, such as a table or brewing vat, but value which is built on reputation, goodwill and similar aspects. Think about when you last went to a really great microbrewery. You'd probably heard something about it in the area from locals or saw an article about it that caught your attention. Maybe the brewery had a great award for a specific brew.

It could also be that the brewery has done a lot in the community to build up charitable organizations and volunteer groups. There are any number of other ways that a craft brewery increases its intangible assets and value. However, this is a difficult value for many individuals to calculate, especially given the complexity of the process involved. How do you put a figure on the hoppy flavor of an IPA? What's the value of that best in class ribbon hanging on the wall? Working with an experienced business appraiser is the best way to work out the value of these intangible assets.

Your microbrewery is as unique and creative as you are, and that reputation deserves to receive a fair value when you're working on the business side of your company. Valuing a craft brewery is a difficult process, one that requires careful attention to detail and solid experience with both the industry as well as the nuances of the business itself. Be sure that the appraiser you're trusting the process to is certified to ensure they have the needed knowledge to calculate an accurate value for your business.

Tags: Valuing a Craft Brewery

Avoiding the .com Issue: Valuing an Ecommerce Company

Posted by Business Valuation Specialists LLC on Feb 1, 2019 8:05:00 AM

Valuing an eCommerce Company

When you're considering investing in a tech company, it's easy to get caught up in all the hype with the latest and greatest being pushed by the company. But when you're not familiar with all the specifics, how do you know whether you're really buying the next Apple, Microsoft, Evernote or Intuit or if you're just throwing your money at the next big bust? This was the problem faced when the .com bust took place not that long ago. Fortunately, there's one way to help make sure you're making a smarter investment - by valuing an ecommerce company with a certified appraiser. Here's why it makes the difference.

 

Avoiding the .com Issue: Valuing an Ecommerce Company

Today, digitization and tech are taking center stage because of their potential for transforming our society as a whole. However, that doesn't mean that every tech company is a solid investment. To get an idea of where companies sometimes fall short of their hype, we're going to take a few minutes to look at the past - specifically, the .com bust that happened in the late 1990s. As the internet began to grow significantly in popularity and more companies began selling their products online, the companies that incubated this boom became very popular, and tech companies specifically suddenly found themselves with a lot of eager investors knocking at their doors, investors who often didn't understand what the company did or whether it had a solid plan in place for success.

As the market grew, these companies would spend ridiculous sums of money on fancy office furniture that was far more than was needed for their situation, executives were paid huge bonuses and amazing presentations were made on the company's potential, but in the end, the young leadership was often unable to anticipate many of the issues that came up due to competition, a quickly expanding market or changing conditions that made it difficult to adapt. Because these companies didn't take the time to build solid value, their investors were left with very little when they folded, causing huge shakeups in the market.

Today's digitization trends have investors in a similar quandary. Companies pushing IoT, mobile, cloud computing, automation and so much more are tooting their own horns to gain ground in the market. But unlike the .com bust, there's a better option than simply taking the company at its own word to determine its actual value and potential. The past several decades of digital business have provided significant data towards determining the actual value of a company and what aspects of that company to consider when trying to determine that company's value, both current and future. By having a solid business valuation performed, you'll have all the information you need to make an intelligent decision.

Instead of risking throwing good money away on a bad investment in a tech company that talks big but is short on details, using a certified business appraisal specialist for valuing an ecommerce is a great way to ensure that you're making a wise investment. However, make sure that the business valuation specialist has both experience in working with tech companies as well as a solid certification. Why? The certification process teaches the appraiser to use standardized methodologies that have been tested for decades in legal, financial and tax industries, providing you with solid reliable results that you can take to the bank.

Tags: Valuing an eCommerce Company

Why Should You Get an Appraisal for Tax Purposes?

Posted by Business Valuation Specialists LLC on Jan 18, 2019 2:12:33 PM

Appraisal for Tax Purposes

<p>When your company is dealing with tax issues, there is any number of issues that may come up. Using the right schedules, withholding the right amounts, making the right deadlines are all among them. But sometimes it's vital that you be able to prove the value of your business beyond a reasonable doubt to a tax agency. When this happens, it's vital that you get a business appraisal for tax purposes. Here's why:</p>

<h1>Why Should You Get an Appraisal for Tax Purposes?</h1>

<ul>
<li>Starting with an accurate business value. When you purchase a business, what's it really worth? If you bought into a company that was overpriced but potentially an okay deal at the time because market conditions said you'd clear the excess eventually, or if it was bought at a song during a slump in the economy, how do you prove the actual value? A business valuation helps to prove what the company is actually worth beyond the purchase price.</li>
<li>Fighting bad tax assessment. We've all known someone who received one - a tax assessment that was so far out of line as to be ridiculous. One contractor told the story of how his warehouse had been assessed at such a high rate, he could have torn it down and rebuilt it twice for what they were assessing it at. A business valuation helps fight bad tax assessments with solid documentation.</li>
<li>Adjusting value for market conditions. Has your industry gone into a bull or bear cycle lately? If it has, it may have affected your company's value significantly, either to the positive or negative. But how do you calculate those changes in value? When you have a business valuation performed, you can then adjust the value of your business in your books to account for these conditions, which will hold up with tax agencies.</li>
<li>Providing proof of value for an audit of past years. Sure, the IRS thinks you have a mistake on your books from 2008, but was your company really worth that much at that point in the recession anyway? If you didn't adjust your books at the time, a business valuation specialist can go back and make adjustments to reflect your company's actual value in the past while providing quality documentation with tested methodologies&nbsp;for your records.</li>
<li>Proving changes in value in the future. You hope your company will be worth more in the future, but by how much? When you have a quality business valuation performed by a certified business appraiser as part of a series of valuations, it's very easy to document your current business' value so that you have a solid basis to judge change in value over the years. This allows you to adjust your books accordingly and get a big picture of what different decisions have done to shift value for your business.</li>
</ul>

<p>Your business needs protection, often from the same government agencies that are ready to overreach their authority and expertise in a wide range of issues. Getting a business appraisal for tax purposes helps you control your company's tax liability when an inaccurate assessment or estimate of value is made by the tax agency. However, the appraisal report only holds up when it's been prepared by a certified business valuation specialist, giving you the benefit of tested methodologies to back up your valuation.</p>

Tags: Appraisal for Tax Purposes

Keys to Understanding the Market Approach in Business Valuations

Posted by Business Valuation Specialists LLC on Dec 27, 2018 1:57:00 PM

understanding the market approach

Whether you're a seasoned pro at having your business appraised or are just considering having your first business valuation performed, there are any number of terms that show up during the process that can be confusing. One of those is market approach. Used to define the type of calculations that are used in determining the value of a business, this approach uses a range of information from publicly traded companies to provide a baseline which is then adjusted to your company's specific situation. Here's a quick look at this type of valuation approach and the key aspects you need to understand to get the most out of it. 

Keys to Understanding the Market Approach in Business Valuations

  • Based on the principle of substitution, market approaches to valuation uses a recently sold similar public company and bases the final value of the appraised company against the public company's sale price. The business appraiser identified a good match, then compares the businesses to calculate your company's value as an equally desirable business from the aspect of ownership or investment.
  • There are several common methods used to determine business value using this approach. The Guideline Public Company Method, which looks across the board at all the aspects of a publicly traded company that has recently sold, then adjusts those aspects to match the company that is being valued.
  • The Multiple of Discretionary Earnings Method uses discretionary earnings as the yardstick against which the company to be valued is compared. It uses privately held companies versus public companies as the businesses are usually smaller in size.
  • The Gross Revenue Multiple Method takes a look at a company's gross revenues to determine value. This allows business owners to receive the benefit of future business income at the time of sale, an excellent option for retirees who are getting out of a lifelong business or an entrepreneur who is ready to move on.  Like the Multiple of Discretionary Earnings Method it uses privately held companies versus public companies as the businesses are usually smaller in size.
  • Generally speaking, market approaches are used most commonly when a company has been closely held for a number of years providing a guide for determining that value overall.

By understanding the key aspects of how market approach valuation works in a business appraisal, you can have a much better grasp of how your company's value is being calculated and what it means to your business. If you're ready to have a business appraisal performed, remember to only work with a certified business valuation specialist. This helps to ensure that the valuation report you receive is based on solid methodologies and accepted practices, giving you the best possible value for your investment.

Tags: Market Approach

Should you really worry about valuing a restaurant? Absolutely!

Posted by Business Valuation Specialists LLC on Dec 20, 2018 10:19:00 AM

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When you operate an eating establishment, it's easy to get lost in the daily rhythm of valuing a restaurant, thinking only of valuation when it's time to sell and even then only on the fringes of the process. However, valuing a restaurant should be a vital part of your operation, providing you with valuable insights into how your business is faring, what its value is and how you may improve it to improve that value overall. For these reasons and many more, you should seriously consider having a valuation performed on your eating establishment. Here are a few reasons why you should consider investing in a quality business valuation:

 

Should you really worry about valuing a restaurant? Absolutely!

  • Valuation provides you with a baseline of what your restaurant is worth. Should you take the local real estate agent's word on what your restaurant is worth or is there more to it than that? Often times, you'll get a much more thorough evaluation from a business appraiser. It takes into consideration a wide range of issues, such as your location, the overall market in the area, your competition, your reputation in the community, your future income and any number of other aspects that can be very complex in nature. This is something that most real estate agents don't always fully consider when presenting you with a potential asking price for your business.
  • Valuation gives you an idea of where you can improve your restaurant. How do you compare against competitors in your area? Are you losing business to that new Italian place down the street? How can you change your operation to improve your restaurant overall? Because a business valuation specialist who is focused on restaurants looks at businesses like yours all the time, they're able to quickly pick out where your company is strong and where it's weak. This gives you valuable insights into your business in the valuation report that allow you to take action to improve and grow your company.
  • Valuation helps you determine future income. Will you be able to count on your restaurant income when the kids go off to college and you need to pay tuition? If you don't know where your company is going and how to project your past and current business income into the future, that may be a difficult decision to make. Fortunately, the methodologies used in preparing a valuation report means you can not only get an idea of what that income will be, you can take it to the bank - literally. The standardized methodologies used in valuation reports are widely accepted by financial institutions because of their strong performance in the past.

When you're trying to keep your restaurant rolling on a daily basis, it's easy to overlook why valuing a restaurant can be so very important to your business' bottom line and long-term success. But before you have a valuation performed, make sure that you work with a certified business valuation specialist. This ensures that the money you spend will be well invested to create a solid valuation report that will hold up well in a wide range of circumstances that were discussed above, because the certification process ensures that the appraiser learns and uses standardized methodologies that have stood the test of time for many decades.

Tags: valuing a restaurant

What benefits come into play when valuing a business for sale purposes?

Posted by Business Valuation Specialists LLC on Dec 13, 2018 12:08:21 PM

valuing a business for sale purposes

When you're considering selling your company, it's hard to know how you should prepare it for that sale. Should you invest in one particular area or another to increase the return on your investment? If you make a change to one area of the business, will you positively or negatively impact the value of another aspect of your company? Are there any areas that you're really missing out on that will have a detrimental effect on your company's final sale price if you don't fix them? This is why valuing a business can be so beneficial for entrepreneurs who are getting ready for a sale. Here's a glance at the different benefits and why they're important to the sale process.

What benefits come into play when valuing a business for sale purposes?

Let's start by looking at how your company is performing. Are there specific areas in your company that need to have improved processes and practices brought into effect to improve performance? Perhaps you've got a lot of bad debt in your A/R department that can be handed to an outside collection agency. Maybe your equipment is in excellent condition, but your infrastructure needs serious improvement to protect that investment.

Next, let's consider how your company stacks up against the competition. Where are you strong and where are you weak? Competition may include companies in your region or companies that offer similar products or services to your industry. Does your business have a reputation for innovation, research and development? Maybe you offer strong customer service. Whatever it is that makes your company stand out, that helps build your business' value. But how should you develop it?

What about your industry as a whole? Does your brand stand out as a leader, building a strong market share on name alone? That brand is worth something. Is your industry growing as time rolls forward or does it lack the leadership and innovation to continue into the next era? These aspects will also impact your asking price. Are there areas where innovation within your industry will make it stronger, allowing your business to take a position of leadership, improving its value and overall market share in the industry?

It's also important to not forget about the effect of the market on your final asking price. Though knowing exactly where the market is heading is impossible, experienced appraisers have been through enough cycles and studied the financial data from enough companies to be able to make an educated guess on whether your market is heading into an upswing or a downswing. This helps give you a timeline with regards to whether you need to work quickly to get out or if you should weather the storm until things improve.

By valuing a business, you're getting a deep look into not only how your company operates and produces value, but also how it stacks up against other businesses and the industry overall. When you work with a certified business valuation specialist, you know that the information they provide is based on years of education, experience and expertise in your industry. Getting a series of valuations as you prepare your company for sale helps give you a solid guide through the process, maximizing your final asking price and profit.

Tags: valuing a business for sale purposes

Valuing a Construction Company for Transition: What You Need to Know

Posted by Business Valuation Specialists LLC on Dec 5, 2018 12:26:00 PM

valuing-a-construction-company-1

With succession planning or selling a business, you must know the value of your construction company. A business valuation can help with that. Find out what you need to know when valuing a construction company for transition purposes. 

Timing 

All too often, business owners don't think about selling their business until something catastrophic happens, such as disability or divorce. Perhaps you've heard that the worst time to go car shopping is when you need a car ASAP, such as after an auto accident. Well, the same analogy holds true for transitioning your business. The worst time to seek a valuation is when you need to sell your company immediately due to a change in circumstances. 

Savvy construction firm owners begin the process of seeking valuation up to seven years before they actively get out of their business. This extended time frame allows business owners to develop a transition plan, make changes to the company structure to boost attractiveness, and prepare the construction company for transition. 

Partnerships

Your partner in valuing a business is an appraiser who has demonstrated experience with construction companies. The right appraiser will have experience valuing other construction companies and will understand the equipment you use. Since you will be acting upon the valuation to prepare your business for transition, it's important to choose someone who communicates clearly. If you don't understand the business valuation, how can you act on it? 

To complete the transition, you will also need a business attorney and tax specialist. If you don't have an attorney or tax preparer, find partners while you are still in the planning stages of transitioning your construction company. 

Preparation 

Valuing a construction company provides a snapshot of the company's worth at a moment in time. Your appraiser will explain why the company has the value it has and how you can boost the value, which would increase profits in a sale.

Your appraiser will also explain the method used in valuing your construction company, which can help you prepare for a successful transition. While income-based methods, which include discounted cash flow and EBITDA, are traditionally used when valuing a construction company, there may be times when other methods (like an asset-based approach) are more appropriate. 

After your business valuation, identify what steps you will take to position your business for transition and increase value accordingly. Boosting business value in the years before you transition means you make more money when you cash out.  

For instance, your business may be more attractive on the open market if you are keeping your employees and assets, so a new owners can jump right in with a team of skilled laborers. You would need to determine when, what, and how often to communicate with employees regarding the transition. Clear communication reduces rumors and gossip, which can create a toxic work environment if left unchecked. 

If you've been skating by with old equipment, your business might look more attractive if you replaced legacy equipment with newer models. By budgeting for this ahead of time, you can position your business for a smooth transition while maximizing your profits. 

By preparing ahead of time for the transition, you can pave the way for the company you worked hard to build to change hands successfully. You may also be able to get a better price for your business, because you know the true value of your company and can better communicate it to others. 

Tags: valuing a construction company

Valuing a Manufacturing Company Before a Divorce: What You Need to Know

Posted by Business Valuation Specialists LLC on Nov 28, 2018 2:10:00 PM

valuing-a-manufacturing-company-1

During a divorce, the divorcing couple must split personal and professional assets. When one partner in the marriage owns a manufacturing company, the company's worth must be split during the divorce proceedings. Valuing a manufacturing company can determine the worth of the business, which helps negotiations proceed. Here's what you need to know about business valuation for divorce purposes when it comes to manufacturing facilities. 

Splitting Up Marital Assets in a Divorce

Divorce laws vary by state. Generally, divorce lawyers classify assets as belonging to one party or both parties.

If an asset was acquired before the marriage (as when someone owns the manufacturing plant before the marriage), then it's classified as separate. The caveat here is business improvements that were made using joint funds, for instance new equipment financed by a joint back account. Even with a manufacturing business that predates the marriage, the spouse may be entitled to a portion of the company's value. 

If a manufacturing company is acquired during the marriage, then it counts as shared property and must be split in the divorce agreement. In many states, property should be split 50/50 between the spouses. 

Many divorcing couples do not want to co-manage a business together. The easiest solution to this dilemma is often the least desirable one: Sell the business and split the profits from the sale of the manufacturing company among both parties.

Another common option is for one party to buy out the other party of their interest in the business, then run the manufacturing company. When the business owner wants to retain their business and buy out the spouse, they must first take a valuation of the manufacturing company to determine worth, then pay out the rightful share as part of the divorce proceedings.

Business valuation experts can value the manufacturing company to determine its worth. It's better to have an independent valuation of the manufacturing company than rely on the business owner, who is not neutral, to estimate the value. Relying on the owner to gauge the manufacturing company's worth is not recommended, as it's in the owner's best interest to undervalue the company, while it's in the spouse's best interest to overvalue the manufacturing plant. 

Valuing a Manufacturing Company for Divorce

Manufacturing companies can be valued using an asset, income, or market-based approach. An asset-based valuation calculates the worth of equipment and personnel, an income-based approach assesses present value as compared with future earnings, and a marked-based approach looks at the worth of similar manufacturing facilities recently sold. 

Asset-based valuations are common with manufacturing facilities, since these companies tend to own a lot of expensive and unique equipment; however, sometimes it's best to combine appraisal methods. An appraiser will identify the best method to use based on the company and circumstances, explain the selected method of valuing a manufacturing company, and provide documentation to support their valuation. 

Some couples choose to hire a single appraiser who can determine the business's value. Other couples opt to hire two appraisers, so each spouse can work with an appraiser of their choice. If two appraisals are conducted, the valuations can be compared by the attorneys during the divorce negotiations. 

Determining what, if any, part of a business a spouse is entitled to is a process best left to divorce lawyers. Once you determine that a business counts as shared property and must be split, identify a qualified appraiser who can value the business for divorce purposes. 

Tags: valuing a manufacturing company