Business Valuation Blog | Understanding Buying / Selling a Company

What Kind of Skills Does a Business Appraiser Need to Have?

Posted by Business Valuation Specialists LLC on Nov 7, 2018 5:14:00 PM

When you're in a position to have a business appraisal performed on your company, have you ever thought about the vast amount of knowledge, skills and expertise that a certified business appraiser needs to have to be able to determine the value of your business? It's a very specialized skill set that is often overlooked in everyday life. Here's a quick look at the skills that are required of business valuation specialists as they go about their jobs every day.

What Kind of Skills Does a Business Appraiser Need to Have?

  • Serious attention to detail. Consider, for a moment, the complexities of your business. Now imagine having to determine all those complexities within a very short period of time! Business valuation specialists need to have a serious ability to ferret out every detail about your business that is necessary to create an accurate assessment of its value.
  • Ability to work through complex calculations. The market is up, the market is down, one business is very similar, another is very different. There are a wide range of factors that come into play when calculating an accurate business value, requiring an appraiser to have a very strong set of math skills to keep up with constant changes during the process.
  • Thirst for knowledge. Because an appraiser needs to get into the nitty-gritty details of every aspect of your business, they need to have an innate thirst for knowledge. Not only do they need to understand the value of your products, they need to understand where your company is innovative and where it needs to catch up. This requires a strong love for learning.
  • Strong research abilities. Which other businesses is your business similar to and which ones is it different than? Being able to pick out these differences and discover the fine lines that make companies unique is a definite strength when an appraiser is working on different company valuations all day.
  • Real-world communication skills. Have you ever worked with someone who just couldn't explain the process? Because business valuation specialists have to work with their clients to develop a fair value for a business, they need to have strong communication skills to get the job done right. This allows them to ask the right question for every situation that may arise.
  • Ability to adapt to changing circumstances. Is this company going out of business because of a bankruptcy or is it being sold at a premium to the perfect buyer? Because every appraisal is different, it requires the business valuation specialist to go into each situation with the ability to adapt to that particular case and apply their knowledge fairly across the board.

A business appraiser needs a diverse set of skills to be able to perform the job they do on a daily basis. It takes a lot of time and dedication to develop these skills, whether through a training program or through on-the-job experience. When you need to have your business appraised, do you want to have the business appraisal determined by someone who is simply making a guess based on their general experience, versus a professional who has taken significant time and effort to become certified and develop these skills? Working with a certified business appraisal specialist delivers real value for your company

Tags: Business Appraiser

Valuing a Construction Company

Posted by Business Valuation Specialists LLC on Sep 28, 2016 12:00:00 PM

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Construction is and has always been a boom/bust business. Either business is so great that you can't keep enough people hired or so poor that you're barely keeping the lights on. How can you ensure your construction company will make it through the hard times and get the best out of the good times? A quality business valuation performed by a certified business appraiser provides you with amazing insights into where and how your company is profitable and how to plan for coasting through the rough patches. Here's how:

Valuing a construction company to navigate industry slumps

Many business owners consider the valuation of a company using serious business appraisal methods to be something for Wall Street. But how do you think the big companies got there? The owners, executives and managers paid close attention to what was going on in the business and made good decisions. Much like the stock market, construction has a lot of ups and downs, and to take advantage of market conditions, you need to know what shape your business is in first.

If the market is going into a slump and there's a competitor considering selling out, is it a good time to buy? It could be, even if the market is going into a decline, if both your business and the other business are on solid financial footing. The best tool to use to make a smart decision, especially if you don't have a solid background in business yourself, is having business valuations performed by an experienced business appraiser. But why wouldn't you use the asking price as a point for negotiations? Surely the owner wouldn't be asking too much for the business, right? Not necessarily. An asking price is just that. It's an opening point for negotiations and represents what the owner hopes will come from the sale of the business. A business appraiser takes many more considerations into account when valuing a business.

What about the new machinery you're considering buying during an upswing? A business appraiser's recommendation might be to get an equipment appraisal to give you a better idea of what your assets are actually worth rather than a random estimate. This can help qualify you for better financing and lower interest rates, which allows you to put even more into your business. Basing your assets only on what a balance sheet says after tax time can leave you under- or over-estimating the value of your assets. Why? A tax accountant takes the value of your assets and depreciates them over a certain amount of time. The  2-ton box truck you use may be completely depreciated in five to seven years, showing a zero value in your accounting system. But what if it dies after three years and you lose money because it wasn't completely depreciated? What if it lasts 12 years and still has value after being completely depreciated? A formalequipment appraisl will take these factors into account.

Having a business valuation performed on your construction company helps you navigate the rough times and take advantage of the good times. It allows you to take your business further while protecting your investment against unnecessary risk. Are you ready to improve your construction company and your chances at real success? If you're not currently working with a certified business appraiser with experience in construction, you're leaving yourself open to risk.

Tags: Business Appraiser, valuing a construction company

Craftsman Quality: Valuing a Woodworking Company for Market Positioning

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

You work hard to make your business successful. But do you know where your business' best market position is? By valuing a woodworking company, it's much easier to see which segment of the market your company will see the best profits. Here's a look at several ways a business appraisal helps determine the best course of action:

Craftsman Quality: Valuing a Woodworking Company for Market Positioning

What does your company do well and what does it do poorly? You know you need a unique selling position, but maybe you are not quite sure what that position actually is. Does your company provide basic MDF furniture that comes ready to assemble or masterpieces of grain and craftsmanship? Does it operate best by providing one of a kind heirlooms or mass produced pieces? It could even be that you're still figuring out where your business needs to market itself to get the best profitability. Business valuations help provide insight into your company and where it is best suited.

A quality business valuation takes into account not only your business' net value but also the state of the industry, your competitors and the strong and weak areas in your business. A business appraiser who has experience in your industry can often see patterns or potential problems you may not, giving you great insight into how your business is functioning. Do you have too much money tied up in equipment that is ineffective, costing you labor and utility overhead? Is there a cash flow issue that is lurking in the background? Does your business have enough equity to invest in a new direction or will it be too high a risk of losing your business if things don't work out as you wish.

A good business appraiser also has experience in the industry and may be able to spot changes in the market that you haven't anticipated. If the economy is in a slump, a mass-produced line of inexpensive furniture may sell well, while a company specializing in high-quality, unique pieces may need to alter their marketing approach compared to when the economy is doing well. Alternately, when the economy is thriving, there may be less demand for inexpensive furniture and more demand for higher-quality items. 

What about your competition? What sets you apart from the rest of the crowd? A business appraiser may be able to note areas of your business that boost your business' unique selling point. You could have an exceptional website and digital marketing program that positions you for internet sales. Maybe you have contacts with larger distributors that allows you to get your work into the stores faster or more easily than your competitors. Because a good business valuation provides detail customized to your business and your current needs, you get much more out of the report than just a simple calculation of your business' value.

By valuing a woodworking company, you can get great insight into what your company does well and where it needs improvement. This helps you position your company for success while fixing any issues that may have shown up in the valuation of a company.

Tags: Business Appraiser, valuing a woodworking company

Getting Company Valuation Services Before a Merger - How it can help

Posted by Business Valuation Specialists LLC on Jan 13, 2016 1:30:00 PM

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While mergers are announced with much fanfare, many of these deals fail to live up to their hype. If your business is considering a merger, how can you avoid becoming one of the many merged businesses that do not deliver added value? A simple solution to increase transparency and align the deal for financial success is to seek business valuation services before the merger. Learn how a company valuation can help in this situation. 

Why Seek Company Valuation Services Before a Merger?

A merger can be confusing for all parties. In the uncertain aftermath, decisions may be made hastily that have lasting impact on the success or failure of the merger. 

By seeking a business appraisal in advance, all parties can ensure that the business value is cataloged by an independent third party with industry expertise. A dedicated business appraiser can review the financial documents, assets, liabilities, and full health of the business, and then advise on business strengths. This information helps key stakeholders make more informed decisions on how to proceed after the merger. 

Getting an independent valuation of a company also helps all parties negotiate the financial terms of the deal. A business appraiser will compare the business to companies that are similar in size and nature.  Appraisals can also be completed taking into account some assumed synergies with the other company.

The Dangers of Mergers Without Business Valuations

Without an appraisal, companies might disagree on key terms of the deal or fail to take action that is in line with the best interests of the merged business. Worse, companies could come to regret terms, creating a partnership mired in bitterness. 

There are so many key details to be ironed out during a merger that the day to day running of the business can fall low on the discussion list. Unfortunately, these very processes are the key to getting the business running after a merger and retaining high value customers. Delays here could cause top talent to migrate elsewhere or nervous customers to choose another service provider. 

By uncovering valuable information that can guide negotiations, company valuation services can streamline merger and acquisition talks. When leadership can settle the financial terms of the merger more quickly, they can then move on to discuss other key variables - and plan for success after the merger. 

When it comes to anything as complicated as a merger, it is vital to have key information ahead of time. Since a company valuation appraiser is independent, unbiased, and thoroughly knowledgeable about the unique business industry, he or she is best qualified to uncover and present this important information. 

Tags: Business Appraiser, company valuation services

6 Things Business Appraisal Services Can Do for Your Business

Posted by Business Valuation Specialists LLC on Oct 8, 2015 12:00:00 PM

Though it makes sense to have a business valuation performed when you're selling your business to determine the asking price, there are so many more benefits you can receive from business appraisals. From estate planning to buying out a partner, we'll look at six benefits you may not have expected from hiring business appraisal services.

Knowing Your Business Financial Health

Business appraisal services perform a valuation of a company to help you determine its financial health. How? When you have fully-depreciated equipment in your business, you may no longer be claiming it as an asset, but it still provides collateral if needed for a loan to expand your business by boosting the asset side of your balance sheet. But beyond simple assets and liabilities, business valuations also look at where your business is going, providing forecasts of your business' future income to help you know where you're going.

Determining Where Your Business Needs to Be Improved

When you're considering selling your business or passing it to the next generation, you want it to be in the best possible situation before you reach that point. Instead of waiting until you want to sell your business, business appraisal services give you a good picture of your company valuation, allowing you to see where your business needs to be improved before you're ready to sell. This gives you a chance to boost your business' net worth by addressing areas where your business is lacking.

Negotiating a Sale or Merger Price

When you're ready to sell your business or merge it into another company, what's it worth? If you want to go to the negotiating table from a position of strength, you can get everything your business is worth. If you negotiate without knowing exactly what your business is worth, you can't negotiate for what you deserve.

Helping Develop an Exit Strategy

Many businesses, such as most restaurants, have a finite lifespan. How do you develop an exit strategy if you don't know where your business is going? A business valuation helps you determine what direction it's heading in and how long you can expect your business income to remain steady. By knowing where your business is heading, you can determine when to sell, change up your game or pass the flame to the next generation.

Buyout of a Partner or Divorce

You start a business with a partner or spouse with the best of intentions. But sometimes, along the road of life, those intentions go awry. How do you determine a fair and equitable buyout of a partner who is choosing to leave the company or when a divorce forces your hand? A proper valuation of a company allows you to know whether the offer you're being presented with is a good deal or needs to be negotiated to a fair buyout figure.

Tax Planning Options

There's a reason businesses all around the country hire professionals to file their taxes - it's an incomprehensible maze of figures, exceptions and allowances. When you have a business valuation completed, you get a good picture of where you need to invest to take advantage of tax breaks and where tax shelters and other options exist to better manage your business' tax burden to its smallest possible amount. 

Though running a business is a complicated prospect, knowing how to steer your company into the best possible growth scenario doesn't have to be. Contact a qualified business appraisal service to find out what opportunities you've been missing.

Tags: Business Appraiser, business valuations, business appraisal services

How to Price a Business For Sale

Posted by Business Valuation Specialists LLC on Jul 27, 2015 10:30:00 AM

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How to price a business for sale

Valuing a business seems simple enough on the surface, but calculating  the true market value is not as easy as it appears. And most important, it can cost you a lot of money if your price it too low and a lot of time if you price it too high.

Business Valuation Specialists is a nationwide company specializing in establishing business valuations for privately-held companies under $20M. We take pride in our ability to establish a fair and defensible price that buyers can understand and be willing to pay. Anything but a fair and accurate business valuation is a waste of time for both buyers and sellers.

Our appraisers are certified by the National Association of Certified Valuators and Analysts (NACVA) and our roots go back to 2003 when we first started advising business owners on how to maximize the value of their business and its assets. We are now a national company valuing companies across the country.

One of the most important steps in selling a company is determining how to price a business for sale. A company is perhaps the most important asset most business owners will ever have, but very few owners are familiar with the proper methods to complete business valuations and business appraisals. That is why it is important to work with a professional business valuation company like Business Valuation Specialists.

Using the Market Value Approach

Appraisers often select the market value approach to determine how to price a business for sale. They draw from a database of previous sales that they have access.  Doing proper business appraisals certainly is not as simple as finding a couple of “comps” and running the numbers.

Appraisers must look at the description of the business and take into account factors such as the location and time of the sale. Comparables sales should only be used when the size is comparable and the dates are withing a reasonable range. It is the job of the appraiser to make sure that the comps selected are comparable to the subject.

Summary

Deciding how to price a business for sale is far more complex than most people realize and it can make a huge difference in how much money a business owner makes when the sale is finalized. Business Valuation Specialists pays attention to all the details throughout the entire process to assure that the business owner has a valuation that is useful for planning as well as negotiations.

Tags: Business Valuation, Business Appraiser, Market Approach

A Business Appraiser Can Set a Realistic Sales Price for Your Business

Posted by Business Valuation Specialists LLC on Jul 22, 2015 2:00:00 PM

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As a business appraiser, Business Valuation Specialists knows how hard you have worked to build your business. So, when it comes time to sell, you want to make sure you receive a fair value for your buildings and equipment, inventory, patents and industry goodwill. Our team of professional appraisers can provide an accurate business valuation for needs such as sale of a business, estate planning, mergers and acquisitions, buy/sell agreements, and purchase or sale of an ownership interest. In all of these cases, you need to be able to establish a realistic company valuation that will accurately reflect the time and effort you have invested. It also needs to demonstrate to potential purchasers the gain they may expect to receive for their investment.

In general, there are three approaches that we utilize as a certified business appraiser in order to assess the value of a business - asset, income, and market - although certain cases may call for a combination of these assessment techniques. There are also several methods of appraisal which fall under each of the approaches, and are used as appropriate in different client situations. These approaches might be implemented as follows:

  • Asset Approach: Prospective buyers would certainly not want to pay more for any business assets than it would reasonably cost them to duplicate on their own. The business appraisal needs to take into consideration the age and condition of any tangible assets, such as machinery and equipment. On the other hand, intangible assets such as a trademark, patent, or special manufacturing process may provide an added sales inducement. For example, if you are selling a manufacturing company that produces widgets, prospective buyers may be more interested in the patented process you own than the actual equipment itself.
  • Income Approach: This business valuation method is used to try to place a current value on the potential benefits and income that a business might produce in the future. While a small up-and-coming business might not have a great deal of assets, it might have a product or innovation with the capability of producing a substantial amount of income over time. Depending on the strength and consistency of the company’s cash flow, our business appraiser might choose to capitalize or discount potential earnings. For example, if you own a small distribution company and want to grow your business with a cash injection, potential investors want to be assured that they will be able to recoup their investment and realize a substantial gain on it as well.
  • Market Approach: When using this method in the valuation of a company, we typically look at other similar businesses in the industry for comparison purposes. If your business can be reasonably compared to another in your industry that has sold for a particular amount, we can use that as a justification for a certain value from an investment standpoint. This valuation approach might be appropriate for estate or succession planning.

Using these approaches, our business appraiser can set a realistic sales price for your company - one that will reflect the value of the hard work you have put into your business, while still presenting an attractive offer to potential investors. Business Valuation Specialists is a nationwide provider of business valuations for privately-held companies under $20M in revenue. We bring real-world knowledge and in-depth experience from the trenches to our business appraisal services.

Tags: Business Valuation, Business Appraiser

Boosting Value: Using Business Valuations to Increase Company Value

Posted by Business Valuation Specialists LLC on Jul 17, 2015 3:00:00 PM

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Selling a business is often the most lucrative and efficient exit strategy for an entrepreneur looking for new opportunities and it can be an incredible way to see a return on an investment of dollars, years, and unquantifiable effort to establish a business in which you intend to maintain a role. But when business owners seek out a valuation of a company, regardless if it be done using an income, asset-based, or market approach, they often find that the business appraisal is somewhat less than expected.

A corporate valuation is a metric of the health and expected longevity of your company at a given time. This means something very important: the value of the business is not simply in the numbers, it’s in the eyes of the beholder. As such, getting a business appraisal in advance of any corporate merger or acquisition can help a savvy business owner to increase the apparent value of the firm in advance of corporate action.

A Buyer’s Perspective

The first step in boosting any business valuation is to tackle the track record. A perspective buyer wants proof positive that a business if profitable. Documenting a history of success will make the perceived value of the company higher, even though past results are not indicators of future success. Multi-year track records offer a level of comfort to a buyer, and more importantly, can drive up the valuation of a company if one uses the earning multiplier valuation method.

Future Earnings & Growth Markets

But again, the knowledgeable investor will only put so much faith in a company’s track record. A buyer will want to be strategically positioned to capitalize on the future earnings of your business and will expect those levels to increase with time and nurturing. This makes it important to quantify a firm's competitive advantages. Identifying what is unique about a company and showing how that gives an edge over competition will facilitate a sale at full value. 

Furthermore, the possibility of growth in your sector will often times be enough to drive up a business appraisal. To that end, seek out multiple growth markets within your sector that will foster high levels of future earnings.

Get Proprietary

Founding a successful business hinges on an owner’s ability to innovate efficient methods of accomplishing tasks; but what increases the value of that business over the competition are patents on those methods and the technology that makes them possible. Many buyers will not even look at a business if there is not some kind or proprietary asset, intellectual or otherwise. In short, the word proprietary is a siren’s song for buyers so look for ways to have it included in your business valuation.

Organization

The phrase “hot mess” is one often associated with a corporate merger. This is because a large share of M&A activity involves a successful, organized company taking over a firm that is on its back foot. A small business owner looking to sell cannot afford such characterization. Organization of financial records, business policies and best practices, and regulatory compliance go a long way with buyers. An organized firm is easier to fold into current operations and buyers will be far more likely to pay full value when things are tidy.

Personnel and Personalities

Business is about people. This is a sentiment shared by many of the great business owners of the last century. Rockefeller, Branson, Bezos, they will all tell you that it comes down to people. A central component to boosting business valuations is presenting the strength of the human resources of the company. To increase that value, recruit high level talent. This will signal to buyers that they can expect the strength they see in potential earnings and organizational structure to continue under their ownership.

Tags: Business Valuation, Business Appraiser

Would Getting A Business Valuation Help Sell My Small Business?

Posted by Business Valuation Specialists LLC on Sep 30, 2013 10:09:00 AM

business valuationAttaching a dollar amount to a business that you have spent years building may end up rooted in subjective personal feelings rather than in reality.  The true market value of your business is what some one is willing to pay for the benefit of a return on their investment. Analyzing cash flows generated by the business along with market data will support the asking price of your business by objectively provide evidence as to what a buyer will expect to gain from their investment.

Expected future cash flows provide the most value for a successful operating business and are what buyer’s desire.  The assets of your business other than certain intangibles such as: trademarks, patents, and special processes will provide little for the buyers return on investment.  A buyer expects to generate future returns that can only be provided by cash flows and certain intangibles.  Fledgling businesses not generating sufficient cash flows would have an approximate value of the net assets of the business. An asset-based valuation would over simplify the value of the business and neglect the earnings potential of the company.

An objective business valuation analysis can help establish a professional opinion as to what the present value (i.e. selling price of the business) of the expected future cash flows should be for your small business.  Enlisting the help of a qualified business appraiser will significantly shorten the time needed to sell your business. In using the businesses proven profitability and earnings potential the appraiser can ensure that it is priced correctly to move in the current market conditions.

Tags: Business Valuation, Business Appraiser