Business Valuation Blog | Understanding Buying / Selling a Company

Business Valuation Specialists LLC

Recent Posts

What Happens During a Financial Services Business Appraisal?

Posted by Business Valuation Specialists LLC on Mar 16, 2020 8:00:00 AM

business documents on office table with smart phone and laptop computer and graph financial with social network diagram and three colleagues discussing data in the background

When you work in financial services, you know what a lot of things are worth. But do you know the real value of your business? A financial services business appraisal can provide you with a lot of information about your company that makes it easier to make improvements to your bottom line, have a strong starting point for sale negotiations or update your books to reflect accurate values. But what happens during the process and what kind of information do you need to have available for the business valuation specialist who handling your company's valuation? Here's a quick look at the process to help you get started.

What Happens During a Financial Services Business Appraisal?

To start, your business valuation specialist will want to know the basics of your business, such as annual income, number of employees, if there are any other branches of the business that will be included, your assets and other basic information. Once they have that information, they'll request specific financial statements and other documentation to help calculate the value of the business. After they've had a chance to study these documents, they may ask additional questions, such as whether the business has had any unusual transactions that may skew the future income of the company, such as the year that you had to replace all of the office computers because of the transformer that blew out down the street or the year that you had a huge contract come in that doubled your usual income.

Once the appraiser has this information, they'll start to calculate value. If you did have unusual transactions, the appraiser may create normalized financial statements that prevent these transactions from causing a poor calculation further into the report. They'll look at your company to see where it's strong and where it needs some improvements. Are you making a lot of innovations and seeing strong growth because of your product development process or are you simply going along with the rest of the crowd?

Then they'll look at your competitors and determine whether they are growing or shrinking and the impact that can have on your business' value. Next, your industry as a whole will be considered and determined whether it's growing or contracting, which can impact your business as a whole. The appraiser will look at similar businesses that have sold recently that are similar to your business and then calculate how that sale price can impact your company's value. They'll consider how many transactions or how much income that business has and then adjust it to fit your company, adjusting the sale price accordingly. Once they've finished looking at your entire company, they'll write up your company's value in a comprehensive report.

By having a financial services business appraisal performed on your company, you can get a much better grasp on it's overall value, strengths and shortcomings. But this can only happen when the appraisal is performed by an experienced independent third party who doesn't have an interest in the outcome of the valuation. Working with an accredited business valuation specialist ensures that you will not only receive an independent opinion on your company's value, but that the value will be calculated using tested methodologies that will hold up well in legal, financial, tax and insurance circles.

Tags: Financial Services Business Valuation

What happens during an appraisal of a food services business?

Posted by Business Valuation Specialists LLC on Mar 2, 2020 8:00:00 AM

food services appraisal

When you work in a food service business, it's easy to get caught up in the daily grind of food procurement, recipes, customer service and improving profitability. But part of operating a successful business is knowing its value, which is why an appraisal of a food services business can provide you with not only the value of your business, but also information on how to improve that value, whether through improvements in your operation to reduce costs, changes in the demographics that you're marketing to or ways to make your business stand out from the crowd. Here's a quick look at what happens during the process of appraising a food service business.

What happens during an appraisal of a food services business?

When you contact a business valuation specialist, they'll start by asking you some basic information about your business. This can include some basic information about your business finances, your competition, your operation and the region you operate in. They'll ask you to forward some other information, such as financial statements, and will look over those documents to determine where your company stands financially and how accurate those statements are in regard to your company's actual value.

Once they've had a chance to go over the documents, they may ask you about specific transactions or contracts. This is to help them determine why your income or expenses may have changed at various times. For example, if you had a large, one-time contract that may not have been representative of your usual income, it will impact your projected income into the future, one of the ways to determine business value. In the same manner, your business value may be skewed if you've had unusual expenses, such as replacing expensive equipment following a fire or a theft.

After the appraiser has had the opportunity to study your financial documents, he or she may recommend that adjusted statements be prepared to better reflect those unusual transactions and provide a more accurate value of your business. They'll take a look at what assets you have, what kind of market share you hold, your expected future growth, how innovative your business is, what kind of products or services you're providing to your customers and similar areas of interest.

The appraiser may also look at similar businesses that have been sold recently. They can take a look at a similar business for which financial data is available, such as income, receipts or other transactional information. Once that information has been found, the appraiser will adjust it to reflect the reality of your business' situation to determine what your food services business' fair market value may be. Whatever process the appraiser uses to determine your company's value, they'll use a tested methodology to complete the process and provide you with a business valuation report.

The process of calculating the appraisal of food services business is a complex process, which uses a range of tested methodologies that stand up well in a wide range of real-world situations. That's why it's important to make sure that you only use an accredited business valuation specialist who has experience in your industry and has no stake in the outcome of the valuation. By taking the time to work with a business appraiser, you'll gain vital insights into your company's operation, its position in the market and its overall value.

Tags: Food Services Business Valuation

What's Involved in a Dry Cleaners Business Valuation?

Posted by Business Valuation Specialists LLC on Feb 17, 2020 8:00:00 AM

Dry cleaner business valuation

When your business is dry cleaning, clothes, customers and constant movement. Whether it's your racks, machinery or premises, there's always something on the go. But how do you put a value on your loyal customers, the services you provide and your reputation in the community? A dry cleaners business valuation can provide you with a wealth of information on your company, beyond a simple calculation of value. But how does it work? What's involved in the process? Here's a quick look at how a valuation is performed on this type of business.

What's Involved in a Dry Cleaners Business Valuation?

Dry cleaning businesses often have a range of aspects that are common to other companies, such as receivables, expenses and assets, but also has a number of areas where it stands out. Generally speaking, companies are valued as the appraiser considers finances, intangible assets such as community goodwill, competition and the current market conditions. These factors are adjusted for the specific business, any unusual activity and similar aspects.

When a dry cleaning business is appraised, there tend to be three specific areas that stand out compared to other industries. These aspects can quickly change the value of the business, as market factors change. 

First, the dry cleaning industry is dependent on consumer spending. When the economy is poor, many consumers switch to using wash and wear clothing rather than bearing the expense of dry cleaning more expensive clothing. This can rapidly change the value of your business, causing you to lose value during hard times and gain it during good times. For that reason, having a plan in place to reduce expenses, provide better value to your customers and similar approaches can help boost your income during the tough times.

Secondly, the operating efficiency of the business is of vital importance in determining value. If you're employing a lot of people who are not actively working, if your equipment is inefficient or if you're not making the most of your customer contacts, your business will have high overhead expenses and low profitability. Improving efficiency by upgrading equipment, optimizing employee workflow or creating a rewards program for customer referrals will help you boost efficiency and profitability while reducing your overhead cost percentage.

Thirdly, the location of the business is an important factor in constant income. If your business is in a poor location, if the neighborhood becomes undesirable or changes in local roadways makes it hard to reach or park near your business, you can quickly lose business as patrons change to more convenient, safer or easier-to-find locations. Changing location can make it much easier to gain back lost income, but your location must always remain a prominent part of your business plan.

There's no doubt that a dry cleaners business valuation can provide you with a wide range of benefits for your business, and knowing what's involved in the process makes it easier to understand the factors underlying your company's value. However, it's of vital importance that you have your valuation performed by an accredited business valuation specialist. This qualification means that the appraiser has been through rigorous, specialized training to properly calculate your business' value using standardized methodologies that have been tested in a wide range of real-world situations.

Tags: Dry Cleaning Business Appraisal

How is a Bottling Facility Valuation Different Than Other Business' Valuation Process?

Posted by Business Valuation Specialists LLC on Feb 3, 2020 8:00:00 AM

bottling facility business appraisal

When you're considering having your business valued, it's natural to wonder how the process differs from other industries. A bottling facility valuation has a number of differences compared to other industries. Understanding how your facility is different and how those differences impact your company's value can make a big difference in understanding how to leverage that value to your business' benefit. Here's a quick look to help you understand the process and how you can use the knowledge you gain in business valuation to your bottling facility's advantage.

How is a Bottling Facility Valuation Different Than Other Business' Valuation Process?

Let's start by looking at the daily operations of your bottling facility. You need to keep the product cold until, through and after the bottling process is complete. This is a vital part of your company's success, by ensuring the quality of your clients' product and their success. The product must be successfully bottled, ensuring that minimal amounts of the product are lost during processing to breakage, leakage and spillage. Throughout the process, the product must be kept moving efficiently through your facility so that you can keep your business running profitably.

This bottling process means that you have a great deal of business value in your company's equipment, including refrigeration, filtration, conveyance, filling, labeling and transport. The reputation of your business is also a solid part of your company's value, as your prosperity is tied up in the success of your customer's products. This particular combination of equipment and reputation is a unique aspect of bottling facilities, and must be taken into consideration by an experienced business valuation specialist when determining the value of a company.

Another area where a bottling facility is different than other industries is in the organization of the business. Many bottling facilities are franchises of major drink manufacturers, such as soda, beer, juice or similar drinks, while other bottling facilities are independent, taking on a range of new or small-scale drink companies' products to help them get off of the ground. Some facilities are huge, covering hundreds of thousands of square feet, while others are much smaller, covering a bare minimum of space to better accommodate their smaller-scale clients. A business appraiser will need to be able to take this wide range of business sizes and organizations into account and adjust their calculations of value in this process.

At the same time, business and income security must be taken into account when calculating income. Franchises that are part of a major drink business have a more secure level of income, ensuring a stronger resale value and more demand in the market. Independent businesses have a number of benefits as well, such as more flexibility in a changing economy.

A bottling facility valuation provides you with a wide range of information that you can use to grow your business, fight inaccurate tax assessments, accurately document income for insurance purposes or support your side of negotiations during the sale or purchase of a company. However, it's of vital importance that you use the services of an independent, accredited business valuation specialist. The independent nature of this type of appraiser ensures that the valuation report you receive will be accurate and free of any outside influence, calculated using methodologies that have been tested time and again in a wide range of situations.

Tags: Bottling Facility Business Valuation

What's Involved in Private Country Club Appraisal?

Posted by Business Valuation Specialists LLC on Jan 20, 2020 8:00:00 AM

private country club business appraisal

When you own or manage a private country club, your days are filled with dealing with greens, sorting out irons, facilitating space and services rentals and a range of other tasks. Private country club appraisal is quite possibly one of the furthest things from your mind, but having this type of valuation performed can provide you with a range of information that can be helpful in the management, sale or growth of your private club. Here's a quick look at how private country clubs are appraised and how their values can be impacted by a wide range of factors.

 

What's Involved in Private Country Club Appraisal?

A private country club has a range of different factors that are unique to that aspect of the entertainment and recreation industry. Rentals, training, green fees, membership fees: these are the lifeblood of your business, but what drives the value of this income? The real estate you own and occupy, the equipment you use in maintaining your facilities, the buildings: these assets are a vital part of your business, allowing you to keep it operating, but can fluctuate in value. 

In addition to a number of services and assets that you have available for sale, there are other factors that can impact your business' value. If your private country club gains a poor or exceptional reputation, this can impact intangible assets of your business such as community goodwill. If you regularly host a range of charitable events, provide free greens access to the local high school's golf team or otherwise reach out to provide service to your community, your business benefits from those opportunities as members of the community do business with you because of your intangible assets.

Do you have exceptional individuals teaching or working in your pro shop? They help build the value of your business due to their reputation for excellence, which brings more people to your country club to learn from or be advised by them. What about the condition of your greens and the service by your staff for your customers? How popular are your rental facilities for weddings, reunions and business events? These aspects of your business also impact your company's value and can either improve or reduce that value.

When a country club is appraised, all of these aspects are taken into account, providing you with a more accurate value of your business. The appraisal specialist will look at a range of other factors, including comparing your club to others in the area. They will evaluate your income, expenses, seasonal and long-term changes in these factors. They'll see how your club compared to other clubs that have recently sold, making adjustments for income, transactions and similar financial aspects to the sale price to determine your business' value.

By taking advantage of the information that is provided in a private country club appraisal report, you can use that information to leverage for the benefit of your business. Whether you're considering selling, putting your club's assets against a business loan for further growth, filing for business losses during an unexpected closure with your insurance company or fighting a bad tax assessment, the information contained in an appraisal report prepared by an accredited business valuation specialist can be invaluable to your company.

Tags: Private Country Club Business Appraisal

How is an Auto Body Shop Valuation Handled?

Posted by Business Valuation Specialists LLC on Jan 6, 2020 8:00:00 AM

Auto Body Shop Business Valuation

When your day is full of wreckers, welders, paint guns and primer, the value of your body shop may be the furthest thing from your mind. But if you've ever wondered what's involved in an auto body shop valuation, wonder no more. Here's an inside look at how the entire process is handled, what factors can impact your shop's value and what you can do with the valuation report you receive at the end of the process to grow your business and maximize your profitability.

 

How is an Auto Body Shop Valuation Handled?

To start, let's take a look at how the valuation process is handled. Once you've decided to work with an appraiser, they'll gather a certain amount of information about your shop to help with the valuation process. This will include information about your business' financial situation, assets, competitors, position in the industry or community, reputation and similar areas of interest to the appraiser. The business' finances will be adjusted to accommodate any one-time income or expenses to create a more normalized cash flow picture. Community goodwill and reputation will be taken into account as intangible assets. Competitors will be considered to help determine potential growth in the future and market share. 

These factors that impact value are not the only areas of concern, however. Does your body shop have a reputation for innovation and new approaches to how you get the job done? Do you have higher-than-normal bad debts from customers or high overheads due to an expensive location? Do you have unusually high assets from inheriting a shop or high liabilities due to an expensive business loan or poor tax choices in the past? These issues will also impact your business' overall value.

Another area to consider is why you're having the appraisal performed. If the body shop's owner has died suddenly and the heirs to the estate are pushing for a fast sale, the business will be appraised using very different methodologies than if it's being appraised for fair market value to determine current value or future income approaches to valuation to help determine the sale price of the company for a retiring owner.

There are a number of benefits to having a valuation report on hand for your business. If you suddenly have to shut down your business for several weeks due to a natural disaster, a crisis in the building or other issues, being able to quickly provide your insurance company with documentation of value helps to speed an insurance claim along. If you need a business loan to purchase a competing shop that is suddenly up for sale, proving the value of your company to your financial institution helps make it happen faster.

An auto body shop valuation can seem like a complex process, but the benefits you receive at the end through a comprehensive valuation allow you to grow your business and leverage that value towards a great future. However, not all shop appraisals are the same. It's vitally important that you work with an accredited business valuation specialist, so that you can rest assured that the value that is calculated is fair because it has been worked up by an independent third party with no interest in your business' future dealings.

Tags: Auto Body Shop Business Valuation

What's Unique About a Health and Wellness Business Valuation?

Posted by Business Valuation Specialists LLC on Dec 23, 2019 8:00:00 AM

Health & Wellness Business Valuation

There are a wide range of businesses in operation today to help keep us in the best possible health, and those businesses each hold a value that can be calculated on a wide range of factors. However, a health and wellness business valuation can be a little different than other types of valuations that are performed to calculate value. What are these differences, how can they impact your business and how do you determine which ones need to be fixed? Here's a quick look at the overall process to help you get started.

What's Unique About a Health and Wellness Business Valuation?

  • Reputation: As a health and wellness business, your reputation is of paramount importance to your company's value. You wouldn't take your car to a bad mechanic and hope everything would be okay, right? Neither will your patients and customers want to go to a practitioner who has a poor reputation. That reputation has value, which is taken into consideration for your company's appraisal. Practitioners and offices that have exceptional reputations will have much more business, can charge a premium for their services and their practice will have a much higher resale price.
  • Services Plus Product Sales: Many businesses provide either services or products, but often with health and wellness businesses, there's a unique combination of both to facilitate patient care. A chiropractor offers specific muscle rubs to help clients between visits. A spa offers a range of anti-aging products to improve appearances between treatments. This combination of service value plus inventory must be carefully taken into account when your business' value is determined, a task that is best handled by a qualified business appraisal specialist for that specific reason.
  • Market: Right now, people are very aware of their health issues, and it's popular to take steps to stay in shape, improve your outlook or take care of old health problems. That makes the health and wellness market very popular right now and gives health and wellness businesses a higher profit margin when they are being bought and sold. However, if that market were to slump, such as around the 2008 economic recession, that will also impact value, lowering the value of the business, which must be taken into consideration. A business valuation will reflect the value of your business at a specific point in time.
  • Training: One of the constants in health and wellness is regular training. Your staff's certifications show that you have additional capabilities that other practitioners or businesses may not be able to offer, and that has value. A massage therapist who only has a regular state certificate will not have the volume of business that a therapist with certifications in cranial-sacral release, maternity massage or similar certificates, and that volume will be reflected in the company's value due to the difference in business income.

By having a good understanding of how your company's value comes together, a health and wellness business valuation can provide you with significant insights into where you can improve your business to maximize your profitability, either during regular operations or when you're changing ownership. However, it's important to have your business valuation performed by an experienced, accredited valuation specialist who will provide you with an honest calculation of value.

(Added for keyword counter) Health and Wellness Appraisal

Tags: Health & Wellness Business Appraisal

What's Involved With a Business Appraisal for Security Systems Companies

Posted by Business Valuation Specialists LLC on Dec 9, 2019 8:00:00 AM

Security Systems Business Appraisal

You run a security company, so much of your daily focus is on hiring the right employees, having the right monitors in place and reducing your response time to emergencies to an absolute bare minimum. But what is your business actually worth? Not knowing the answer to this question can put the security of your business at risk. What happens when you have a security system business appraisal performed on your company? Here's a quick overview to give you the basics of what to expect.

What's Involved With a Business Appraisal for Security Systems Companies

To start, a business valuation specialist will take a solid look at your business' finances. They'll make adjustments to your accounting books to remove any one-time income or expense that is skewing what your usual figures would look like, determine if there are areas that are inaccurate, such as fully-depreciated equipment that has no value on your accounting books, but still has significant value in the regular operation of your business. They may be able to make some suggestions, such as if you're carrying a lot of bad debt from clients who are not paying their bills and how to handle that type of situation so that you can improve your business' overall financial health.

Next, they'll take a solid look at your business operations. Are there areas where you're leading the pack in terms of ingenuity, efficiency or similar areas? Are there areas where you're lagging behind, actually causing harm to your business? If there are areas where your business is seeing high overhead, they may be able to make recommendations about how to make that part of your company operate more efficiently to reduce that excess overhead and improve your profitability.

What about your competitors? Is the area you're in saturated already or is there room for business growth? The business valuation specialist will take a long, hard look at your competition, whether it's on a regional level based on geography or a comparison to other businesses that handle the same specialty that your business is focused on. They'll be able to determine differences between the companies and adjust your business' value in their calculations accordingly, providing you with a much more realistic picture of your company's value.

The next area they'll take on is the condition of the market. Is it growing or shrinking? If some hot new technology is giving homeowners a different option than traditional security systems, that may be impacting your business' ability to compete in the marketplace. The business valuation specialist will also take a hard look at other businesses in the market, using them as a final ruler to calculate your business' value by comparing your company to the other businesses that are in the market that have sold recently.

By staying on top of your company's value with a security system business appraisal, you can rest easier that your company is as secure as your clients' homes and businesses. A quality business appraisal report from an accredited business valuation specialist provides you with a solid tool for fighting bad tax assessments, proving your company's value in court, securing financing for expansion or working with an insurance adjustor for downtime after a disaster strikes your area. Shouldn't it be part of your emergency response toolkit?

security system appraisal (included for keyword counter)

Tags: Security Systems Business Appraisal

Why Do You Need a Business Appraisal for Sale or Purchase?

Posted by Business Valuation Specialists LLC on Nov 25, 2019 8:00:00 AM

valuing a business for sale or purchase

Whether you're considering buying or selling a business, it's a big decision, one that you want to get right. One way to ensure that you're getting the deal you're looking for is by getting a business appraisal for sale or purchase of a company. This process confirms the company's estimated value through an unbiased third party while providing solid documentation that leaves you in a position of strength in your negotiations. Here are a few examples of why you should have a business appraisal performed on the company you're considering transferring ownership of.

 

Why Do You Need a Business Appraisal for Sale or Purchase?

Let's approach this situation from two different viewpoints: that of the buyer and of the seller. The buyer wants to maximize their profits from the sale of the business, but may not be exactly certain of the areas in which their business is strong or weak. They may have some idea based on guesses, but nothing that has been verified by an expert outside of their own business. Where should they improve their business? Where should they invest some funds to help improve profitability when they sell the company? Without outside insights, this process can be arduous and may not end up in the best interests of the seller.

Now let's look at the buyer. They want to purchase a company, but at the same time want to make sure that they're making a good investment. They want to make sure that they won't suddenly find themselves in financial trouble because income, assets or liabilities were not properly represented while they were researching the company. Do they know whether the high-dollar sale last year was normal or a fluke? Can they depend on that kind of performance in the future, or is the market simply in an upswing that isn't expected to last? Without this information, it's hard to determine whether this business is a solid purchase. 

When a business appraisal is performed by an accredited third party, the results aren't being skewed by someone with an interest in the final result. Whichever party requests the valuation receives the same information that would have been provided to the other party. This makes it easier for both parties to sit down at the negotiating table and come to an equitable agreement based on the fair market value of the company. Instead of having to waste time arguing over small details about whether the sales transactions in the books are an accurate description of the business' usual state of affairs, you can spend your time in the real details of the deal. Rather than worrying if the equipment has more equity that is represented because it's been fully depreciated, you can negotiate how long the current owner will remain to train the new owner, or whether personal introductions to important current contacts can be arranged.

By having a business appraisal for sale or purchase of a company, you can ensure that you're making an intelligent decision with the change in ownership. However, it's important to remember that the best way to ensure that you're getting an accurate value of the company is by hiring an accredited independent business valuation specialist, who has no possible benefit from the outcome of the company's sale. 

Tags: Business Sale or Purchase Appraisal

An Overview of Privately Held Business Valuation Methods

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

privately held business valuation

Are you wondering what your business is worth? If you are, do you know how the value of your business is calculated? Unlike public companies, which are often valued at least partially based on the cost of their shares on the open market, a privately held business valuation uses a variety of methods to determine your company's value. But exactly what kind of methods are used in this process? Here's a quick overview of common business valuation methods used on privately held businesses.

 

An Overview of Privately Held Business Valuation Methods

Guideline Public Company Method

Are you wondering what your company may be worth if you go public, but don't want to go public until you have an idea of what that value may be in case you can take advantage of other options for financing? When your business has a great deal in common with a publicly-traded company, such as being in the same or a similar line of business, similar revenues or other areas in common, a business appraisal specialist can take the financial data that is available from a publicly traded company. This type of valuation takes the actual price paid by investors to gain a minority interest in that company.

Guideline Company Transactions Method

Another method that uses information from publicly traded businesses, it's most commonly used to calculate the value of several closely held businesses that are in a similar or same line of business as the company that is being valued. The companies that are being compared in this situation must have very similar aspects, such as the size of the business, the products or services being produced, the industry and the regional location. In this situation, business sale transactions that are more recent are considered to be more accurate and meaningful that business sale transactions that are more dated.

Capitalization of Earnings Method

If you don't want your business compared to a publicly traded company but would rather determine what your company is worth based on its income, the capitalization of earnings method can provide a solid answer. This valuation method is applied by taking a company's historical cash flow and projecting it into the future. The appraiser will study the company's financial history, make corrections for extreme or unusual transactions and create a normalized income estimate based on this information. This income estimate is then projected over a period of time to determine the company's value. It provides the most accurate results with businesses that have tended to have a consistent income level and cash flow over an extended period of time.

Discounted Earnings Method/Discounted Cash Flow Method

Another valuation method that uses income and cash flow to determine a company's value, the discounted earnings method, which is sometimes referred to as the discounted cash flow method, is used when a business has unstable or irregular cash flow. It can be applied very well to determine future value.

By understanding the methodology used in a privately held business valuation, you can better understand how market forces, income, transactions and discretionary earnings can impact your company's value. However, it's important to make sure that when you're having a business appraisal performed that you use an accredited business valuation specialist. The certification process ensures that the appraiser you're working with has the expertise, knowledge and experience to properly calculate your company's value.

Tags: Privately Held Business Valuation