Business Valuation Blog | Understanding Buying / Selling a Company

What should you look for when hiring a business valuation expert?

Posted by Business Valuation Specialists LLC on Mar 21, 2018 1:03:00 PM

When you're considering having a business appraised, it's quite often only something you have done once in a very great while. In fact, many business owners choose to only have their business value determined during the sale of a business. Unfortunately, that means that many business owners aren't quite sure what they should look for when hiring a business valuation expert. What should you look for in a business appraiser? Here's a quick look to help get you started.

What should you look for when hiring a business valuation expert?

  • Are they a certified appraiser? Many appraisers go through the certification process to help highlight their experience and education. The process of becoming certified can take several months of classes, documentation and similar preparation work. This means that they're dedicated to the industry and are planning on sticking around. The certification process also teaches the appraiser which calculations should be used in which circumstances, with methodologies that have stood up to solid scrutiny in legal, financial, insurance and tax circles.
  • Do they have experience in your industry? Industry experience allows a seasoned appraiser to determine whether the current market situation is a brief hiccup or part of a larger downward trend. It also provides an appraiser with an idea of what a business in your industry should look like, giving them a solid basis upon which to compare your business.
  • What is their past experience? If the appraiser you hire doesn't have a lot of experience valuing businesses in your industry, you may get less accurate information from the appraisal report. Have they come out of a sales position or real estate background, or an accounting background? This may somewhat impact their approach to how your business is valued, but either should be able to provide you with a sound appraisal.
  • Can they provide you with references? Any experienced certified appraiser should be able to provide you with references as to the quality of their work. Don't settle for simple client testimonials, which may be falsified or from a few choice clients who were particularly pleased with the appraisal work that was provided. Take the time to follow up with at least one or two of the provided references to ensure the appraiser has a solid record of good work behind them.
  • Are there any complaints with commerce organizations or review sites? Whether it's the Better Business Bureau, Google, Facebook or any number of other services where reviews can be left, take a look at whether the appraiser has left any bad experiences behind. If the complaint deals with issues that are not related to the appraisal process, such as odd business hours or a difficult to find office location, you may want to ignore it, but if they deal with serious concerns in appraisal practice, you may want to go elsewhere for your business appraisal.

By knowing what to look for in a business valuation expert, you're able to make a more educated selection when faced with several possibilities. This helps ensure that you're making a solid choice that will benefit your company not just now, but also in the future, based on how you choose to act on the information the appraiser provides. Instead of having to guess which business appraiser will be the best fit for your company, you'll now have a better idea of what an experienced, qualified business appraiser looks like.

Tags: business valuation expert

What is NACVA and why does it matter for your business valuation?

Posted by Business Valuation Specialists LLC on Mar 14, 2018 8:46:00 AM

When you're considering having your business appraised, you'll probably hear a lot of new terms. NACVA, the National Association of Certified Valuators and Analysts, provides a wide range of services, including certification, for business appraisers. This designation can make a huge difference in your business when it's time to have an appraisal performed. Here's a quick look at what the Association does and how it will benefit your company in the long run.

What is NACVA and why does it matter for your business valuation?

Originally the area of certified public accountants and business professionals, business valuations have been used to determine a company's worth for several decades. However, prior to the formation of NACVA and similar business valuation certification organizations, the methodologies that were used by these individuals followed a wide range of approaches and calculations. When this information was brought before legal, financial, insurance and tax organizations, it was put through strong scrutiny to ensure the calculations were correct. Unfortunately, in many cases, the value that was calculated was determined to be incorrect, leaving many companies scrambling to provide alternative documentation of their values.

In 1990, NACVA was founded to support CPAs and business professionals in their valuation process. It developed tested methodologies for calculating business values in a wide range of circumstances. Over time, as these methodologies were put through their paces in legal, insurance, financial and tax circles, they were proven to provide the most accurate picture of business values. In the intervening years, the Association has certified over 35,000 financial and accounting professionals, including CPAs and valuation specialists. The majority of that membership, approximately 80%, are certified in one of the Association's three main certification programs: Certified Valuation Analyst or CVA, Accredited in Business Appraisal Review or ABAR, or Master Analyst in Financial Forensics or MAFF.

Where this impacts your company's valuation is in the level of detail and accuracy of the appraisal report that is generated by a certified appraiser. Because of the methodologies that are used, these documents often include vital insights into your company's performance and operations, allowing you to grow strong areas of your business while improving those areas that aren't doing as well. The report will also often include information on your position within your industry, providing you with options for solidifying that position or gaining ground in new areas that have until now been unexplored.

It will also look at your industry as a whole. Is it growing and healthy, or are there areas of concern that may be holding it back? Is it being impacted by digitization or disruption in the market? What are the current projections for growth? Because these aspects will impact your company's performance, they will be taken into account in the valuation report. Intangible assets, such as goodwill and reputation, will also be calculated into the final figure.

By being aware of what NACVA is and how it's certified appraiser members are able to bring more value to your business valuation, you can use that knowledge as leverage at the negotiating table, as insights into your business and industry and many more areas. Working with a certified appraiser ensures that your business valuation has been calculated using standardized methodologies that will stand up well to strong scrutiny in a wide range of areas, including legal, insurance, financial and tax circles.

Tags: certified appraisal, NACVA

How can your company benefit from a small business valuation?

Posted by Business Valuation Specialists LLC on Mar 7, 2018 3:11:00 PM

If you're considering getting a small business valuation, you're not alone. The primary reason small businesses are appraised typically has to do with selling the company or another type of change in ownership, such as passing it to the next generation. But if that's all you use a business valuation for, you're missing out on some serious benefits. Here's a quick look at the many benefits your company can gain outside of the negotiating room.

How can your company benefit from a small business valuation?

It's fairly common for a company to have a business valuation performed when a change in ownership is about to occur. This helps the departing owner know that they're getting a fair value for the business while the incoming owner knows that they're not paying too much for their new business. But the amount of information that is explored during the valuation process makes it an excellent tool to help you gauge whether your company is on the right track and performing up to its potential. How?

The valuation process starts by looking at a company's finances. The appraiser will look at potential transactions that will need to be recorded to normalize income and expenses to reflect the reality of the business, rather than rare high sales and significant expenses that skew your company's financial picture. It also looks at where your company's finances stand overall, giving you a better idea of whether you have a normal number of slow or bad debts from customers or if you need to crack down harder to get paid on time.

Next, it looks at your company's operations.  Is your business a leader in innovation and development in your industry? Is it running efficiently, or are there areas where improvements could be made to optimize your profitability and lower your overhead? The appraiser deals with companies like yours every day, so they can often provide strong, valuable insights into where your operation could be improved to optimize your productivity and profitability.

What about your company's place in the market? That's the next area that is typically explored. Does it have a strong reputation as a thought leader in the industry? Is it unique in particular areas that add value to the products and services you offer your clients? If you do have areas that are similar to competitors, those will be appraised as well as the areas where your company is truly unique.

Then there's the market itself. Is it currently growing, stagnating or shrinking? It's easy to get caught up in what your company has been doing in the market, but it's also important to know where it's going in the future. When the appraiser looks at your industry, they'll take into consideration any professional projections about future growth in the industry.

A small business valuation is a valuable tool that can be used to drastically improve your company's operation, performance and bottom line. However, if you aren't using a certified business valuation specialist for the process, you may be getting the wrong information. The certification process helps educate appraisers as to the proper approaches and methodologies to be used in a wide range of circumstances. Ensure that the money that you're investing in a business valuation is being well spent by using a certified business appraiser.

Tags: small business valuation

What can you do with a business valuation report?

Posted by Business Valuation Specialists LLC on Feb 28, 2018 1:51:00 PM

Though it's common to get a business valuation report when you're buying or selling a company, the type of information contained in a valuation report can provide you with strong insights into your company's overall situation. This makes it much easier for you to explore new options and make smart investment decisions that will benefit your company's bottom line. Here's a quick look at what kind of information is contained in a business appraisal report and how it can help you make positive changes in your company.

What can you do with a business valuation report?

The main thrust of most valuation reports is the overall value of a company, typically researched around the sale of a company. But when the valuation specialist researches the company and industry while developing the report, a great deal of other information has further value. What kind of information is covered in these reports?

Research into the industry is a vital part of the valuation process. The appraiser carefully considers past performance, new innovations and reasonable future projections to determine the type of growth the company may see down the road. This often includes an evaluation of your competitors, helping show where your company is strong in the market and where it is weak. 

Next, the appraiser will look at your company's finances. By looking at your finances as well as that of similar companies, it's possible to determine your business' overall financial health. This part of the process helps you find areas where your company needs work or where it is doing great. As an example, you may have a higher percentage of your business tied up in bad debts from unpaid invoices or a higher amount of capital that isn't being put to work expanding your operation when compared to most similar companies.

What about your company's material assets, equipment and machinery? Most companies prefer to simply use tax-based depreciation to determine the value of their business assets. However, if you have ever invested in high-quality equipment that is continuing to function well and provide value for long after it's been fully depreciated or have hard-used equipment that has failed well before it's been fully depreciated, those values will be inaccurate, painting an inaccurate financial picture. Part of the appraisal includes looking at the condition and determining the real-world value of your assets.

Your operation will also fall under scrutiny when your company is appraised. Are there aspects of your operations that are inefficient or behind the times in terms of beneficial technology? Are you a leader through innovation in your research and development of new products? Is there excessive waste in your production line or job sites? These areas are studied during a business valuation and their part in your company's successes and failures can provide you with strong insights into how you can improve your company's operation and bottom line while maintaining the basis for your company's success.

By getting a business valuation report on your business, you can quickly discover a wide range of benefits, from in-depth insights to market positioning information. However, you'll only be able to get this level of information from a certified business appraiser's report. This is because of the depth of research and solid methodologies that certified appraisal professionals use. Have an appraisal performed and learn where your business can thrive.

Tags: business valuation report

What's different when you need to know how to value a small business?

Posted by Business Valuation Specialists LLC on Feb 7, 2018 11:11:00 AM

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When it comes to business valuation, small businesses can sometimes be a special case. Because of how they're operated, marketed and maintained, there are a lot of differences compared to larger companies. But exactly how are they different and what difference does it make when it comes to performing a business valuation? Knowing how to value a small business can help you determine where to focus to improve your company's operations. Here's a quick look into the process and the differences that happen when small businesses are valued.

What's different when you need to know how to value a small business?

Because of the size of a small business, many owners don't see the true potential of their company's value. They often see their business as little more than the value of the collected parts. For a restaurant owner, that may be the value of the equipment and location. But where they often sell themselves short is in terms of community goodwill and overall reputation. Let's look at an example.

Two restaurants both set up shop. One is an average cafe with boring decor, inexpensive prices and standard fare. The other takes the time to develop a western theme, a menu that is unique and friendly staff that help build the overall experience for the customer. Even if they spend about the same amount of money getting set up, the second restaurant will almost always sell for more, because they've developed a following and a reputation for innovation in the market. Their food and the experience is unique, and it's one that brings loyal customers back to the table time and again.

When these restaurants are being valued, the simple cafe may focus on the value of the equipment, while the themed restaurant takes a broader approach to value. The income of each restaurant could be projected into the future to determine the business' overall value, but would probably also reflect a wide difference between the two, probably favoring the themed restaurant which may have a higher level of profitability.

Though some larger companies are based on the public sale of similar businesses, this market-based approach may or may not be appropriate to the small business. Neither restaurant will compete with national chains, but that's not why they've been started. The themed restaurant may be able to be compared to a certain extent to the sale of a single national chain franchise, but will also have differences in terms of separate advertising and marketing demands, differences in fare demanded by the national chain for the sake of uniformity across its menu or operational differences influenced by local suppliers, profitability and similar issues. For these reasons, it's very important to be open to a range of valuation options for a small business.

Small businesses present unique challenges to the business valuation process, partially due to their structure, community goodwill and unique approach to management. If you're considering having a small business valued, you'll want to make sure you work with a certified business appraiser who has experience working with small businesses. That helps ensure they'll know how to value a small business properly. Certification ensures the methodology used in estimating the business' value will stand up to scrutiny in legal, tax agency, financial and insurance circles.

Tags: Business Valuation, how to value a small business

What are some common reasons for business valuations?

Posted by Business Valuation Specialists LLC on Jan 31, 2018 1:07:00 PM

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When you're running a business, wondering what your company is worth is a common question. It's one that business appraisal can answer to a high degree of accuracy, but most business owners don't have a business valuation performed except in some specific circumstances. But what are some of the common reasons for business valuations? Here's a quick list of scenarios when this type of appraisal is performed and how it benefits the business in general.

What are some common reasons for business valuations?

  1. Selling a business. How do you determine the selling price of your company? A business valuation helps to determine a fair market value based on your company's specific strengths, weaknesses, assets and liabilities. When you get a business valuation performed, you'll not only gain insights into these areas, you'll be able to improve them to ask top dollar for your business.
  2. Dissolving a partnership or marriage. Invariably, the individual who is keeping the company wants their loyalty rewarded by paying very little for their partner's share, while the individual who is leaving wants the best profit from their share. Because this can be such a problematic issue, there are often requirements for business valuations performed for this reason to ensure fair market value is determined and both sides are dealt with fairly.
  3. Death of the owner. When a company's owner passes away and the company is willed to the family, not all family members will want to stay in the business. There can be a lot of pressure brought to bear on the executor of the will to quickly sell and settle the estate, but having a business appraisal performed allows everyone to understand what the company is worth and whether they want to take a large cut in price for a short sale or wait for the best possible price from the right buyer down the road.
  4. Retirement and passing on a legacy. You've worked hard for years to build up a legacy to pass on to the next generation, and now that you've reached your golden years, you want to make the process as quick and painless as possible. Business valuations can help you determine the value of the gift you're passing on, any taxes you or your heirs will need to pay on the transfer and similar aspects, helping you plan for those costs ahead of time.
  5. Seeking financial backing. When you work with a bank or other financial institution, they often require a business appraisal be performed to ensure that you're not borrowing more than your company may be worth. There are any number of areas where your accounting reports may be off, whether due to older equipment that has been fully depreciated and is still going strong or real estate assets that have lost significant value over the years. By getting a report from a certified appraiser, they know that the figures were determined using standardized methodologies that will hold up well to scrutiny.

You don't need to use any of these reasons for business valuations, however, because having an appraisal performed helps you keep in touch with where your business is going. When a certified business appraiser develops a report for your company, you'll often find there are many insights and aspects you weren't aware of that can help boost your company's overall financial health. Take advantage of this information and see where it can take your company.

Tags: reasons for business valuations

The Basics You Need to Know About Selling a Family Business

Posted by Business Valuation Specialists LLC on Jan 24, 2018 12:58:00 PM

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When you're in business with a family member, whether it's a generational concern or a simple partnership pursued by relatives with a mutual interest, selling a family business can be an interesting proposition. There is a wider range of issues that may need to be addressed and specific steps that will need to be taken. Here's a quick look at some of the basics you'll need to know to get started.

The Basics You Need to Know About Selling a Family Business

  • Find out what everyone's expectations are: What does each family member want to do with the company? If only one part of the family wants to sell, can the other part afford to purchase the business? By starting the process knowing what everyone wants out of the process, you can move forward with these prospective issues in mind and the easier it will be to come to an agreement everyone can live with.
  • Plan to have a plan: Poor decision making and lack of strategic planning can quickly bleed the equity out of your family business if you don't have a plan in place prior to beginning the sale process. Start by having a meeting with all concerned parties and some trusted advisors, such as an accountant, attorney, financial planner or similar professional. Take the time to develop an overall strategy on how to proceed with the process.
  • Create a decision-making process: Because there are multiple people involved in the sale,  you need to all agree on a process for making decisions. If your Uncle Joe has been the peacemaker and negotiator in the family for decades, he'd be a good option to consider in making decisions. If your sister Patty is difficult anytime someone else makes a decision that impacts her but otherwise makes great choices, make sure she's in the group that makes the decisions.
  • Know what your company is worth and decide how to improve it: Getting a quality business valuation can provide you with a solid basis to determine what your company is worth. Even better, it gives you valuable insights into where your business is strong and where it's weak. This gives you an opportunity to decide whether or if you want to improve those weak points to boost the overall value.
  • Make plans to aid the transition: Companies can lose significant value when they're sold to an outsider. This can make many entrepreneurs concerned about investing in the company unless there is a good transition plan in place to help make the change to the new owner. Determine which family member or members could be developed to act as a transition advisor or team to help make the overall process go more smoothly.

Selling your family business is never an easy situation, but by knowing what to do, you'll be able to make progress in the right direction. Though you'll need to look at other areas of concern, these basics should help you make a good start when selling a family business. If you need help determining your company's value, certified business valuation specialists are a good option to consider, as they are independent of any other parties in the sale and will provide an unbiased report of what the business is worth.

Tags: selling a family business

Why is business valuation vital to negotiating a business sale?

Posted by Business Valuation Specialists LLC on Jan 17, 2018 3:21:00 PM

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When you're in the process of negotiating a business sale, one tool stands out above all others whether you're the buyer or the seller: the business valuation. But why is it so important to the process and how does it protect both parties as the negotiations go forward? Here's a quick overview of what a business valuation is and what it can bring to the negotiating table.

Why is business valuation vital to negotiating a business sale?

Selling a business can seem like a fairly straightforward process. A buyer and seller connect, agree on a price and transfer ownership, right? However, it's not nearly that simple. How is that price determined? Did the seller simply look at recent sales of similar businesses in the area and use those prices? How do you know whether the asking price is fair or not? Is the buyer or seller being taken advantage of? These questions can plague those who are tied up in business sale negotiations.

Fortunately, there's an easy solution that keeps both sides happy during the negotiation process. A business valuation uses an independent third party who has had training in tested methodologies to calculate the business' overall worth. Because the appraiser is an independent party, they have no interest tied up in inflating or deflating the company's calculated value. This means that the value they calculate is much more likely to be favorably received by both parties in the negotiation process.

The appraiser is also able to use some amount of flexibility in the valuation, depending on the exact circumstances. They can create a valuation report focused on a quick sale, which may not net as much as the seller would like overall, but is often helpful when an estate needs to be settled and the heirs to the estate want a fast resolution to the process. If the seller is willing to wait for the right buyer, a higher value may be calculated to reflect that ideal circumstance.

But what about the buyer? With the independent approach of a certified business valuation specialist, the buyer knows they can have confidence that the calculated value is accurate. Because of the level of research used in the appraisal, the buyer can rest assured that there has been a solid investigation into the company's finances, the condition of the market, the industry's outlook and any special features of that business that can increase or decrease its value. 

For example, when a company has a reputation for innovative product development, the owner may inflate the asking price. But what if the owner's role in innovation is a vital part of that process? The new owner may not find as much value in the company when one of the major innovators is leaving with the sale. A business appraisal looks at these aspects and how the company will change with the sale. They can then take that into account and determine how much of an impact that will have on the overall value.

By getting a business valuation as a part of the process of negotiating a business sale, both sides realize significant benefits in the process. They can walk away from the negotiating table knowing that they've done a good job. The valuation process, when completed by a certified business appraiser, helps ensure that everyone is getting a fair deal. 

Tags: Business Valuation, negotiating a business sale

How does a company appraisal help when preparing a business for sale?

Posted by Business Valuation Specialists LLC on Jan 10, 2018 11:16:00 AM

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When you're preparing a business for sale, it's a difficult process. You look at your income over the past few years, how much other companies have sold for, potential interest in the company and similar issues, planning for the impact they can have on your overall expected sale price. But what if you could gain valuable insights into a wide range of strengths and weaknesses within your company, providing you with a significant opportunity to improve your company prior to putting it up for sale. This can lead to a much higher overall sale price. Here's how an appraisal can help you in this process.

How does a company appraisal help when preparing a business for sale?

There are a number of ways in which a company appraisal can be used to start developing a plan of action to ensure your company is ready before you start working through the sale process. In the initial stages, a business appraiser will look at your company's financial records. They'll be able to make adjustments to your bookkeeping entries, helping ensure that your financial statements are adjusted to reflect your company's actual income and expenses over a longer period of time. 

Another way that you'll gain benefits from your company appraisal happens when the appraiser begins to look at your company's overall assets and liabilities. Has your real estate significantly increased in value since it was purchased for your company? Is your equipment valued accurately, or do you have assets that have been completely depreciated but still retain value, such as an older but dependable work truck or table saw that was expected to fail early on but continues to function well. They may be able to recommend options to improve your late accounts in your accounts receivable or similar solutions to help improve your liabilities.

What is your company worth in today's market? Though it's easy to guess based on other somewhat similar companies in the area or market, that may not provide you with an accurate picture of your company's true worth. Market-based appraisals look at similar companies but then adjust the value based on a wide range of aspects, including the total receipts and other factors. Your company may have significantly more goodwill or a better reputation in the community, which also has significant value that is often underappreciated by owners or executives. It may have areas in which it leads the industry or innovative new products that are regularly developed, providing a strong benefit to the new owner in terms of a strong brand name that will help ensure strong growth well into the future. 

By knowing which aspects of your business are strong and which ones need to be improved, you can focus on improving the overall picture potential buyers will have of your business. Whether you've spent decades building your company or are simply preparing to sell a short-term investment, having a professional business valuation performed on it can help you vastly improve your overall profit from the sale. Make sure that you use a certified appraiser, as they will use standardized methodologies that will stand up well to scrutiny, ensuring that you have accurate information to make improvements to your company's bottom line prior to the sale.

Tags: preparing a business for sale

Small Business Valuation Services: What to Expect in the Process

Posted by Business Valuation Specialists LLC on Jan 3, 2018 1:32:00 PM

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When you run a small business, you know that you wear a lot of hats, sometimes with limited degrees of success. But when it comes to small business valuation services, you may feel a bit more in the dark than usual. What's involved in the process? What will you need to provide to your business valuation specialist to make the process move along more smoothly? Is it more than just looking at assets versus liabilities? Here's a quick look at the overall process and how to prepare beforehand to ensure a better, faster result.

Small Business Valuation Services: What to Expect in the Process

Going through a business valuation can be a daunting prospect, especially when the business is relatively small. Fortunately, it's not nearly as difficult as it may sound. To start, the appraiser will ask for some details on your company and will almost always request copies of some of your recent financial statements, such as tax returns, income statements, balance sheets and similar information. The appraiser can then take that information and study it to see where your company's patterns fall and where adjustments may need to be made to create a more accurate view of your company's average activities across the years. They may ask for additional information or ask questions about reports that fall outside of the norm. 

Once the appraiser has a good grasp of what your company's income has been, they can look at a number of different aspects that may also impact your company's performance. What condition is your industry in? Is the market thriving or failing right now? These aspects can impact how well your company will do in the future, so they have a strong impact on the appraised value of your business.

One question that often takes business owners by surprise is when they're asked for the reason for the appraisal. A company's value should be the same across the board, right? Not necessarily. When a small business is being sold due to the death of the owner, the heirs may be willing to wait for the right owner or may want to dispose of the company quickly, which will impact the selling price. In other cases, one heir may be interested in buying out the others to keep the company in business, in which case those selling will want to get as much as possible while the buyer will want to pay as little as possible to keep the legacy business in operation.

Another area of concern is the importance that your company's reputation, goodwill in the community and innovations will play in the overall value. When a company is known for delivering superior service or products, it will often sell for more than one that offers more average fare, as will a business that has become a fixture in the community. A reputation for innovation in design and services can also quickly raise a company's value much higher than may otherwise be expected.

By knowing what to expect from small business valuation services when you're planning on having your company appraised, you can be better prepared for the experience and can help ensure it moves along smoothly. However, when selecting a business valuation specialist, make sure you look for one who is certified and who has experience in your industry. This will help ensure that the process goes as quickly as possible while making sure the report generated is the most accurate it can be.

Tags: small business valuation services