Business Valuation Blog | Understanding Buying / Selling a Company

5 Reasons Why Your Company Needs a Business Valuation Expert

Posted by Business Valuation Specialists LLC on Jan 11, 2017 9:40:00 AM

business valuation experts.jpg

When it comes to the valuation of a company, it can be easy to consider the need for a business valuation expert and the business appraisals they provide to be a one-time thing. But if you do use this approach, you may be missing on some of the best benefits business valuations can offer your business. Could it be that you need to have a business appraisal performed more often or need to learn how to take the best advantage of your opportunities? Here are a few reasons why business valuation experts can help your company soar.

5 reasons why your company needs a business valuation expert

  1. Changes in your business' leadership. When you have a change in ownership or leadership in your business, a business appraiser can help you navigate who gets what. When a partner leaves or a divorce happens, a professional business appraisal helps you determine how much that person's share of the business amounts to and how that cost can be handled without breaking the bank. If the individual leaving the business is doing so under a less than friendly situation, the business valuation will hold up to strong scrutiny if a lawsuit becomes necessary to settle the matter.
  2. Shifts in the market. Is the market going through a boom or a bust cycle that is affecting your profitability? How can you stay ahead of the shifts to improve your business' overall standing? A business appraiser can help you determine what changes you can make to keep up with those changes and position your business to come out ahead by taking advantage of the situation. 
  3. Changes in the industry. Has digitization or other new discoveries or technologies caused disruptions in your industry? When these types of changes are occurring, it can be really difficult to figure out where to position your business. Deciding whether you should embrace the changes or ride out the disruption is easier when you know what's going on overall.
  4. Shifts in business focus. Are you considering entering a new sector or changing the direction of your business overall? By knowing what's going on in those areas, you can prepare your business for that shift to ensure that it will go smoothly and that you'll be able to make a successful shift.
  5. Changes in your business' profitability. Has your business become less profitable and you need to know where you're losing money? Maybe you have more money coming in than expected and are trying to figure out how to take advantage of it? A business appraiser can tell you what's going on and how to shift your focus to the change.

By keeping these reasons in mind as you go through your daily operations, you can ensure that you can help your business take advantage of any opportunities that arise without having to worry that you're putting your business at unnecessary risk. Working with your business valuation expert means you can safely grow your business while being guided by expert knowledge of your industry, competitors and business. But what if you're not currently working with a well-qualified business valuation specialist? If you need to be connected with a valuation expert who has experience in and a solid grasp of your industry, please feel free to contact us today. We'd be happy to match you up with the right business appraiser for your company.

Tags: business appraisal, business valuation expert

The Value of Business Appraisal in the New Tax Year

Posted by Business Valuation Specialists LLC on Jan 6, 2016 11:00:00 AM

value_of_business

If you've been wondering about the value of business appraisals, you're not alone. Many business owners consider having a company valuation performed, but back away from committing to business valuations and end up putting their business in a risky situation. As the new tax year is approaching, lets take a look at how getting the valuation of a company helps a business owner make good decisions that directly benefit their company's bottom line.

Navigating the Changes Ahead

Are you getting ready to retire, pass on the torch to the next generation or sell your business? There are a lot of changes that can happen to your business in the next year If you know what's coming up enough to plan for it, you can maximize your tax savings and make the change in leadership a much easier one for all involved. By finding out your company's value of business through a report prepared by a certified business appraiser, you can meet with your financial advisor or accountant with all the information they need, taking the guesswork out of the process and providing legal documentation as to your company's valuation. This in turn allows them to investigate which options will work best for your future plans. This allows you to move ahead with those plans confidently, because you know exactly where your business is heading.

What's it Really Worth?

If you're considering selling your business or making a merger with another company, knowing your business' actual value gives you a point of strength to negotiate from at the bargaining table.

Being a Little Opportunistic

Beyond knowing how to deal with changes in company leadership or determining your business' true value, having a business valuation performed on your company ensures that you know the exact financial picture of your business. This means you can take advantage of investment or business opportunities that come your way very quickly, without exposing your business to risky propositions or bad investments that could leave it crippled in the short term and taking a long road to recovery. A company appraisal performed by a qualified valuation specialist gives you a much better picture of your business' financial health. That means when a new opportunity comes your way, you'll know very quickly whether it's a good prospect for your business or if you should steer clear of the potential risk the prospect could bring.

The advantages you can gain from knowing the value of business concerns are many, but they only apply if you actually have a business valuation completed on your company. To ensure your company appraisal has legal standing, make sure that you have the company appraisal performed by a qualified business valuation specialist who uses standardized methodology to complete your valuation report. If you have any questions or need help setting up a company valuation for your business, please feel free to contact us and chat with one of our highly-trained and qualified business appraisal specialists.

Tags: business appraisal, value of business

Is It Worth the Cost to Get a Business Appraisal?

Posted by Business Valuation Specialists LLC on Nov 19, 2015 10:30:00 AM

 

Though many companies don't have regular business valuations performed, a business appraisal is a great way to take a look at exactly where your company's financial situation is and how it can be improved. Valuation of a company provides vital details to help you decide whether a change or investment you're considering makes good sense and doesn't put your business in a risky financial situation. But is it worth the cost? Absolutely! Here's why:

Why it's worth having a business appraisal performed

Getting a professional company appraisal done on your business helps you know exactly what you have and don't have. By knowing what the bottom line is, you're putting yourself in a good situation if an opportunity comes along, if you need to negotiate a contract or otherwise make a major decision for your company. Here's why business appraisals make good sense:

  • Depreciation doesn't give you actual net worth. Your tax accountant may have depreciated your delivery van over five years, but if you're still using it ten years later, that's five years where that van's value doesn't show up on your business' net worth statements.
  • You're not sure that your tax assessment is accurate. How do you fight a bad assessment without knowing what your company is actually worth?
  • Your market is booming and your bottom line doesn't reflect it. If you'd been an oil equipment dealer a decade ago in Williston, North Dakota, your business may have not been much more than the local hardware store, but when oil was discovered, your business' market value may have skyrocketed.
  • You don't have a clear picture of your business' financial situation. Because you don't know all the conditions that can affect your business' value, you can't make wise business decisions and may put your business in a risky position based on poor financial information.

The situations where it's helpful to have a business appraisal

But when is the best time to have a business valuation performed? Here are some common situations:

  • Making an investment in a company. When you're considering putting funds into a company as an investment, you want to know that the information you have on the company is accurate to ensure your investment is safe.
  • Looking at expanding your business. If you need to finance a business expansion, you're more likely to get a favorable loan rate if you can prove the true net worth of your business and the collateral that backs those figures up.
  • Considering a merger or acquisition. It doesn't matter which side you're on in this situation, knowing what your company is worth going in gives you a stronger position at the bargaining table.
  • Selling or passing your company on to the next generation. Much like looking at mergers and acquisitions, knowing what your company is worth helps you get a fair price and documents the value for the new owner.

As you can see, having a business valuation performed on your company can help you determine its financial health. But what about the company that is performing the company appraisal? You'll want to find a company with a reputation for excellence and that uses Certified Valuation Analysts (CVA) through the National Association of Certified Valuators and Analysts (NACVA) to ensure they're using the best recognized methodology for the business appraisals being performed. Contact us today with any questions or to set up a business appraisal for your company.

Tags: business appraisal, company valuation, company appraisal

How to Value a Service Business

Posted by Business Valuation Specialists LLC on Sep 24, 2015 8:30:00 AM

Comparing a service-producing business to a good-producing business is like comparing apples to oranges. Apples and oranges can both taste delicious, but they have distinctively different flavors. A service-producing business and a good-producing business both sell something of value, but generate sales in entirely different ways. Although there are some common elements in the way a business appraisal is done for both sectors of our economy, how to value a service business requires a different approach than how to value a good-producing business.

Manufacturers are in the good-producing business and they typically make large capital expenditures to purchase machinery and equipment that is needed to produce the goods they sell. Service-providing businesses employ a large majority of the workforce. Some of the subgroups in the broad service-providing category include, financial services, retailers, and health care.

Since a service business does not produce any goods and usually does not have expensive machinery or equipment, a business valuation has to look at the ways that the service business generates revenue. How to value a service business focuses on some of the following variables. 

Type of Service You Provide

The valuation of a company that provides a service can be affected by the level of demand for that service. For instance, as the population ages and Baby Boomers start to retire, the demand for health care services is increasing. If you run a company that provides home health care services that help people stay in their homes, your company valuation would benefit from the need for your service. 

Seasonality

If you run a seasonal business where most of your revenue is generated over a period of several months, your service business carries a higher risk than another service business that derives its revenues in a more steady pattern spread out over the entire year. A disruption in service of a seasonal business can have a bigger impact on the company's bottom line and thus lower its inherent value. Company valuation is based in part on the expected stream of future revenues. 

Brand

Having a strong brand can increase the value of a service business. A small business owner may operate a national franchise like Dunkin Donuts or Subway, and be worth more than a non-branded coffee or sandwich shop.

Client Base 

Business appraisals tend to be higher for companies that have a large and loyal client base because it indicates that there will be a steady flow of business. Whether you have long-term contracts with other businesses, or have developed a following over the years, just about every service company needs repeat business to survive and thrive.

Time in Business 

An established service company is usually considered to be more valuable than a competitor who has only been in business for a short time. It takes time to build a good reputation and get customers to switch their loyalties from an established company to a new company. A business appraisal of a service company should take into account the number of years the company has been in operation. 

Growing or Mature

All other things being equal, a service company that is growing will always have a higher valuation than a service company that is mature. A mature company may have steady business, but revenue will remain fairly constant over time. A company with good growth will build its revenues over the years and thus, is more attractive to a buyer, and also given a higher business valuation

Competitive Advantages

A service company that has a competitive advantage may be able to lower its costs of providing the service or offer its service for less than its competitors. Competitive advantages can be anything from a better physical location, better access to information, or having the most qualified and experienced staff of experts in town. 

Appraising your Service Business

How to value a service business depends on looking at the hard numbers and also considering some of the less tangible factors that add value to a business. If you want an accurate estimate of the value of your service business, you should consider hiring a certified business valuation specialist.

Tags: Business Valuation, business appraisal, How to Value a Service Business

The Exit Sign: Using the lessons of business appraisal to identify if your ability to compete is waning

Posted by Business Valuation Specialists LLC on Jul 31, 2015 6:30:00 AM

business_appraisal

The level of diligence and commitment required to develop a successful company cannot be easily quantified. Building a stable operation is a challenge. Driving that operational success into financial success is all the more of a struggle as market conditions and growing competition at home and abroad make profitability often seem like a mythical white whale. Because of this, nothing can be more important for a company than recognizing when their ability to compete in the market is declining and how this will affect the future company valuation.

Business valuations can be executed using different methods but each of these have the selfsame goal of critically assessing the strengths of a business, whether that assessment be on a relative of absolute basis. An income based approach uses hard values within a company to determine expected profitability and extrapolate an absolute value. A market approach to business appraisals focuses looks at comparable businesses and what they have sold for in the market. Using business appraisals, as well as the analytical approach intrinsic to valuation, business owners can identify a company’s weaknesses in a competitive environment and even determine whether an exit sign is hanging over the door.

Branding

The value of branding is increasingly important for attracting and retaining customers. Operating in a sector where a company’s primary competitors have large annual budgets for growing and maintaining a brand identity can be challenging for smaller businesses. If a business valuation shows a lack of branding as a weakness and there is an insufficient budget, expertise, or will to build one, it may prove the deciding factor in determining whether or not to exit the space.  

Proprietary Assets

Business owners should ask themselves what service, process, technology, intellectual property, or product do they have that cannot be easily duplicated. Replicability is a weak point that many larger business will exploit. These days, small start-ups can be as threatening as large corporations with fluid business models and young talent with an intrinsic proficiency with leverageable technologies. In this environment, the best security is in proprietary assets. A competent business valuation will assess the strength of these within a company and a lacking in this area could indicate an impending end to competitiveness in the market.

Differentiation

Many businesses have no reliance on branding or advertising in the tradition sense. Others turn a profit by capitalizing on the demand for particular need and have no need for proprietary assets. In truth, even companies for which these are important can survive and succeed in an environment of decreasing competitiveness and they do this through differentiation. Susceptibility to market dynamics is a reality of the business world, no matter the sector or industry; however, this risk can be mitigated through intelligent diversification. A business lacking competitive advantage can focus on acquiring specialized customer knowledge, capitalizing on price advantages through overhead reduction, securing an advantageous location, or any of a number of intangible strengths that fuel the staying power of a firm.

Determining the appropriate moment for a company exit can be as challenging as the forming of the company itself; however, company valuations provide powerful insight into the relative and absolute strength of a firm and can guide a small business owner in identifying the best, and most profitable, course of action. 

Tags: Business Valuation, business appraisal