Business Valuation Blog | Understanding Buying / Selling a Company

How Valuing a Manufacturing Company Reveals Hidden Value

Posted by Business Valuation Specialists LLC on Jul 20, 2016 11:30:00 AM

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When you run a manufacturing company, there are many areas where you can make improvements or tap into additional value. Some of these involve taking risks in entering new markets, doing extensive mapping of your strategy or planning your actions in the market when you're not sure what the future may hold. But one of the most under utilized tools used for finding hidden value in your business is the business appraisal. Business appraisals look at a wide range of factors to determine a business' true value. It also makes it easier to find where your business has potential for significant growth. Here's how having a business appraisal performed helps you find that hidden value.

How valuing a manufacturing company reveals hidden value

The first area you'll find value is where your business is not performing up to standards. How is that adding value? Because it helps you ensure your company is as strong as possible. This allows you to improve your business, building its value. Are your assets overvalued because they receive more wear and tear than your competitors? Is your overhead too high because you haven't replaced the old, power-hungry light fixtures in your plant? Is there disruption happening in your industry that may lead to a downturn for more traditionally-modeled businesses? By knowing where your business is weak, you know where to improve it to ensure it will do better in the future.

But how do you compare to your competition? Because business valuation specialists spend their days working with a number of businesses in your industry or related industries. This gives them the insight to what a healthy manufacturing business looks like. They can compare your business to others that are similar or to similar businesses in other industries that are going through the same type of conditions and issues your business is facing. Is it a good time to diversify your production line? Should you look at digitizing your operation to reduce overhead? Having a business appraisal means you can learn from other business' mistakes and successes.

When you're considering expanding your business by merging with another company, do you know the condition that company is already in compared to your own? A company valuation of that business provides the same level of insight. If that company is strong where yours is weak and vice versa, they may be able to compensate across the board and make the merger a success. If, on the other hand, you're looking at a business that has similar weak points, you could simply be taking on unnecessary risk that could cost you your existing manufacturing company. By having a business appraiser take a solid look at both companies, you know what you're getting into from the start or can avoid making a bad investment all together. 

As you can see, there are many areas where your manufacturing company has real value that may be hidden. By taking advantage of the information provided in business valuations, you can improve your business' position in the market and take smart opportunities. If you need help getting the valuation of a company, it's important that you work with a business appraiser who has the necessary training and experience to give you the information you need.

Tags: Business Valuation, valuing a manufacturing company, appraiser

Maximizing Production: Valuing a Manufacturing Company

Posted by Business Valuation Specialists LLC on May 18, 2016 12:00:00 PM

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When you work in manufacturing, you often work with numbers on a daily basis. Specifications, supply costs, overhead: these numbers are very important to the daily operation of your company. But what about valuing a manufacturing company? There are many benefits to having business appraisals performed on your business for a wide range of reasons. One area where manufacturing companies see real results from business valuations is in reducing overhead and production costs through a solid look at where your company is strong and where it is weak. Here are some ways  business appraisal helps:

Maximizing Production: Valuing a Manufacturing Company

Improving Production and Operations

One of the first areas where you'll find room for improvement in your business is through a solid study of business operations. An experienced business appraiser can provide insights into where your company meets the average, where it excels and where it is lacking. Because a business appraiser looks at specific parts of your business, they can quickly determine, for example, if your company is losing money in excess manufacturing waste, inefficient machinery that uses too much electricity or material and whether you're paying too much in property taxes due to a poor assessment by your local tax assessors office.

Improvement in Management and Accounting

Another area where there's room for improvement is in management. If your company is relying on tax accounting records to estimate value, assets and equity, you may be selling yourself short. Tax accounting often depreciates value for a piece of equipment over a specific period of time. If your equipment is failing before that point, you're not getting the full depreciation out of it and you may be overestimating your assets, because the machine is not worth its depreciated value. On the other side of the coin, machinery that is lasting significantly longer than the depreciation period may still have value when the books report a zero value. That means you aren't able to take advantages that come your way, because you don't think your assets are high enough to cover the potential risk. In either case, a business appraisal allows you to determine when to replace vital equipment, providing better budgeting intelligence.

Projecting Income and Market Growth

But what about income? When you're getting ready to expand your manufacturing operation, being able to project your expected income is important both in assessing the risk and in obtaining financing. A certified business appraiser can quickly determine your projected business income based on past income. Though this is easier to calculate when a business has regular income, it can also be estimated for irregular income. A business appraiser also has the knowledge to look at current market conditions and account for those potential disruptions in their calculations. This means when your industry is expected to do well for a period of time, the appraiser takes that into account.

As you can see, valuing a manufacturing company can provide great benefits and insights into how your business works and where it needs improvement. It also provides proof of value for any number of other purposes, from financing to insurance to sale value. If you need to get the valuation of a company, please feel free to contact us today to be paired with an experienced certified company valuation specialist. At Business Valuation Specialists, our job is making sure your business appraisal is completely accurate to your unique situation.

Tags: Business Valuation, how to value a manufacturing business

Death and Taxes: Preserving Your Business Through Estate Planning and Taxes

Posted by Business Valuation Specialists LLC on Apr 27, 2016 10:00:00 AM

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Our world has two things you can always count on: death and taxes.  Unfortunately, many people are unwilling to discuss end of life planning, whether it's those who are faced with health problems and their own mortality or those who will be left behind who do not want to discuss the loss of a loved one. But failing to put a plan in place to deal with this eventuality can leave your business open to serious problems, including insolvency from death taxes. When it comes to estate planning and taxes, it's vital that you take the time to determine the value of a business before the time of need so that you can plan for financial methods that will ensure the continuity of your business. 

Death and Taxes: Preserving Your Business Through Estate Planning and Taxes

What exactly does the valuation of a company have to do with estate planning and the taxes that are incurred when a business is passed to the next generation? Quite a lot, as it happens. Business valuations provide a legal basis for the value of a company, allowing taxes to be charged based on the company's actual value instead of an incorrect estimate based on tax accounting. It also helps you determine areas where your company is strong and where it is weak, allowing you to get it into shape before worrying about passing on your legacy. By getting a valuation from business appraisal specialists, you can ensure that you have some financial means in place to deal with taxes that will fall into play at the time of death. Here's' a little more on each of these areas:

  • Legal basis: By having a company valuation performed by a certified business valuation specialist, you can ensure that your company's value will hold up in court. A certified business valuator has gone through a vigorous training process to ensure they're using the proper methodology to value your company. Because the national accreditation organizations have certified these methodologies, the business appraisals that are calculated using these methods hold legal weight.
  • Strengths vs. weaknesses: A business appraisal looks at all aspects of your business and can help you determine where it is strong and where it needs work. Because the first few years of independent operation can be somewhat rocky for new business owners or even for those who have experience in the company but are taking the reins for the first time, having your company operating in a position of strength at the time of transfer can help ensure your company remains solvent and your legacy remains intact.
  • Estate Planning: Part of estate planning means planning beyond the death of the current business owner. In its most basic, estate planning should include contingencies for taxes that will come into effect at the time of death, when a business passes to your heir. What legal challenges will they face? Have you outlined who you're leaving your business to? What about taxes that will come into effect? A good business valuation allows you to work with an accountant to estimate the amount of death taxes and set up contingencies to ensure those taxes can be paid.

Though estate planning and taxes are a delicate subject, it's important that you look at having a quality company valuation performed to ensure that your legacy will live on after your passing. If you haven't had a chance to have a quality business valuation performed, please feel free to contact our valuation specialists to ensure you have the information you need to properly plan your estate.

Tags: Business Valuation, estate planning, taxes

Why a Valuation is Important When Selling a Business to a Third Party

Posted by Business Valuation Specialists LLC on Mar 16, 2016 10:00:00 AM

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When you're selling a business to a third party, the topic of business valuations may arise. But why is a business appraisal important when you're selling your company, and what difference will it make at the end of the day? As it turns out, the valuation of a company is one of the key documents that several parts of the process revolve around. Here's why:

Why a Valuation is Important When Selling a Business to a Third Party

When you're selling a business to someone you don't know, you want to make sure you can get everything you have coming out of the business into which you've put so much of yourself. A quality business valuation is the first step to ensuring that happens. By having a company appraisal performed, you can see any areas where your business needs improvement, whether it's getting a few pieces of machinery repaired or improving your facilities to make them more welcoming to customers. At the same time, you'll learn where your business is already strong so that you don't have to put further effort into areas that are already in excellent shape. Once you've made the changes and improvements, your business should have increased in value, allowing you to see more benefit from your actions.

The next step is to list your business for sale and entertain offers. If you're like many business owners, you know that your business should be worth more than the assets on the balance sheet, but probably don't know what that figure actually works out to be. By having a business appraisal in hand, you have a much better idea of what that figure should be, and so you can consider offers that are reasonable while dismissing those which are not. You can also decide between appraisal methods, whether you want to ask a price that is in line with similar businesses in your market or if you feel you have a unique position that should be accounted for and request that the appraisal reflect future income from your current business.

But don't feel that you need to snap up the first offer that comes along that is within your acceptable price range. If there is still a significant difference between the offer and the appraised value of your company, having a company appraisal helps you at the negotiating table. Because a company appraisal is based on a standardized methodology, it represents the very best of appraisal practices and procedures, even holding weight in legal, insurance and financial circles. If you want the other party to come up in price, providing them with a copy of a certified business appraisal report may make them aware of facts and circumstances about your business they may have previously been in ignorance of. This then gives them a chance to either change their initial offer or meet a counteroffer you've proposed to them during negotiations.

Business appraisals are vital to your success when selling a business to a third party. If you're getting ready to sell your business and haven't contacted a business valuation firm, please feel free to contact us today. Our qualified business appraisal specialists are ready to help you get the maximum benefit from your business sale.

Tags: Business Valuation, selling a business

How Valuation of a Business Provides Legal and Financial Documentation

Posted by Business Valuation Specialists LLC on Dec 22, 2015 9:30:00 AM

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When you're in a professional field, you may have clients who provide a valuation of a business as part of their documentation for financial transactions or legal cases. But have you thought about how the valuation of a company holds up in terms of legal documentation? Business valuations are a complex process that is often poorly understood by those outside the company valuation field, so here's your guide to how properly qualified business valuation specialists document the valuation of a business using standardized methodology.

The Financial Field

When financial experts consider what a business may be worth, they look at a lot of different factors. Whether you're considering investing in a business directly or work at a financial institution offering business loans or cash-flow solutions, knowing exactly where a company stands financially helps you make better decisions in approving or denying funding. If you base your decision on the business' tax documents alone, you may be receiving a limited picture of the business' finances. As an example, tax documents require depreciation of an asset, often over a fixed period of time. But what if your prospect has purchased the best equipment for the business and maintains it impeccably? The equipment may have no value at the end of the depreciation period according to tax records, but may still be worth a great deal on the market. This creates a false lowering of the company's true financial prospects.

The Legal Sector

Where do business appraisals tie into the legal sector? In many court cases, the value of a business is called into account, whether it's for the settlement of an estate, a messy divorce or a liability lawsuit. Because certified business appraisers follow standardized methodology, their business valuations are usually taken at face value, helping you avoid hours of back and forth negotiating to a fair dollar figure.

Having a solid business appraisal documented helps make your job easier when your clients already have their documentation before anything major happens in their business lifecycle. Now that you know what a great tool business appraisals can be in documenting your clients' business concerns, you can recommend that they take action by getting a valuation of a business performed. At Business Valuation Specialists, we have many appraisers who have earned the Certified Valuation Analyst (CVA) designation provided through the National Association of Certified Valuators and Analysts (NACVA), which means they use well-documented, legal methodology. Contact us today for more details about our program and how we can help your clients protect their business interests.

 

 

Tags: Business Valuation, valuation of a business

How to Value a Company for Sale

Posted by Business Valuation Specialists LLC on Dec 2, 2015 10:30:00 AM

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If you've been working up an exit strategy from your business, have you looked into how to value a company for sale so you can get the best possible price? The valuation of a company is a big part of determining a fair sale price. Can you expect to receive the same amount the business down the street received when sold or are you leaving money on the table from aspects you had not fully considered? In this guide, we'll discuss the information used in determining a company valuation and how it's used to determine a selling price.

How to Value a Company for Sale

There are a few different methods that are commonly used in business appraisal. For the most part, income or market approaches are used by successful companies to see the best possible returns in the sale. Though some business appraisers may promote using an approach based on the company's real estate and property assets, this type of appraisal will only give you the lowest salvage value of your business.

  • Income Approach: The income approach places strong weight on projected future earnings as part of the business' final value. If a company has had steady income or a steady increase in income over its history, that income is projected forward for a certain amount of time as a capitalization of earnings. If the income has been irregular or fluctuating widely, a different approach must be taken to calculate future income, which you may hear referred to as discounted cash flow.
  • Market Approach: This type of company valuation is based on the sale prices of similar businesses.

So what information is taken into account when a business is being appraised? The business income and revenue, whether it has been steady or irregular, will come into account so that future income can be estimated.

Now that you know what figures are being looked at during business appraisals, you have a better idea of the intricacies that come into play. But just as important as the figure is the weight that a proper business appraisal brings to your sale negotiations. Business valuations performed by a qualified appraiser who has experience determining how to value a company for sale provides methodology and financial backing to your listing price. At Business Valuation Specialists, we have many appraisers who have received the Certified Valuation Analyst designation from the National Association of Certified Valuators and Analysts. We're always happy to help with your business valuation needs, so if you need more information, please contact us today.

Tags: Business Valuation, how to value a company for sale

Why Should You Get a Company Valuation Before a Merger?

Posted by Business Valuation Specialists LLC on Nov 9, 2015 11:00:00 AM

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When you are facing a merger, you must figure out how much the business is worth in objective terms. Getting the valuation of a company can help you to establish a worth for the business so you can proceed with your acquisition or merger with confidence and knowledge. Explore the full benefits of getting a company valuation before an upcoming merger. 

How a Valuation Can Help in a Merger

During a merger two parties who each have different stakes must come together into a new whole. To successfully do this, each party must have an accurate perception of the value of the business. Without this agreement, one party may feel like they have a stronger business than another and are thus entitled to more compensation. They may try to drive their price up to feel like they are coming out of the deal with the compensation they deserve, or undermine the other party with lowball offers. If unresolved, this financial tension can bleed over and affect the working relationships of these parties. 

A business appraiser can review the business history, financial documents, assets and liabilities, and competition to come up with an independent and reliable company valuation. An appraiser can also talk through the valuation with all stakeholders so they fully understand the appraisal report. Appraisers usually specialize in particular areas, so it is important to select a business appraiser who is experienced at valuing companies like yours. 

The merger process can be a tricky one to get right, as it involves bringing different parties with differing stakes to an agreement over company value. When all parties involved in the merger agree on the value of the company, then the entire merger process is easier. 

If you anticipate seeking a merger, yet have not yet identified appropriate parties, an appraisal can help you look for suitable partners and provide them with the information they need to make an actionable decision on the merger process. Having the valuation of a company done ahead of time can actually save you time by helping you weed through interested candidates and decline mergers that are a poor fit. 

When you receive the valuation, you can use it as a starting point for negotiations that will be fair to all parties. Protect your business assets by using a company value as a starting point for negotiations. When you are able to agree on a price for the business, the deal can successfully move into the next phase. 

An appraisal can also help you to bring your expectations in line with reality by showing you an honest valuation of your company. While you can hope to sell your company for well over valuation price, the reality is you may have to settle for an offer that is close to the valuation of even slightly below it. Knowing the value of the company will help you make the decision that is in your best interests. 

Company valuations give a snapshot of the business at a moment in time. Even if you have had a business appraisal done before, it is important to do one before a merger so the value established represents the current worth of the business. If you would like to schedule a business appraisal, we at Business Valuation Specialists would be happy to work with you to value your business. Contact us to learn more or schedule a business valuation. 

Tags: Business Valuation, company valuation

How to Determine the Value of a Business

Posted by Business Valuation Specialists LLC on Nov 5, 2015 10:00:00 AM

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When it comes to business appraisals, taking the valuation of a company is a different process for small businesses than it is for large ones. Whether you are a small business owner who is thinking of selling the business or an individual who is hoping to purchase a small business to run, knowing how to value a small business can help you through the process. Learn how business appraisals of a small business help to establish the company value. 

How Small Business Appraisals Work

Small businesses are different to value than big businesses, and a large company appraiser just may not know how to value a company in different life cycles. Take it from the professionals at Business Valuation Specialists - small businesses and businesses in early growth stages are different from large companies so they require different strategies to value. 

A skilled small business appraiser will take a combination of approaches to value small business assets and liabilities. When the business is young, the appraiser might take a market approach to value business profitability vis a via local competitors. For a small business that is growing rapidly, such as a technology startup, an appraiser might try an income approach. 

If you use a lot of specialized equipment, like automotive repair, the appraiser will be able to value the machinery and equipment for you, since these assets are critical to business. This can be particularly helpful if you want to update your equipment or inventory and sell the old machinery at auction. 

Any small business appraiser should be able to work with you and your partners and explain how to determine value of a business so you know how much your small business is worth to a buyer. Since the results of the appraisal can be vital in selling a business, it is important to work with an experienced individual you can trust. 

Why Get a Small Business Appraisal 

Especially when it comes to something like a small business, it can be easy for the owner to get emotionally invested in the business. This is even more true if they founded the company an built it from the ground up. However, this emotional investment often leads the owner to value the company over and above what it may be worth on the market. This can raise all sorts of problems when it becomes time to sell the company. If you want to learn how much your company is worth objectively, so that you can get the best deal possible, then you need a company valuation expert

After you work with a business valuations expert to appraise the company, you can gain a greater perspective. This allows you to negotiate a sale knowing when an offer is too low and when it is a fair deal. By negotiating for the best possible sales price, you can feel good about the deal and can rest assured you are being treated fairly. You can also bring the sales process to a close quickly, which allows you to move on to other things. 

Would you like to schedule a small business appraisal to find out what your company is worth? At Business Valuation Specialists, we have appraisers who specialize in several key industries. We can connect you to an appraiser who will be able to perform a timely and thorough small business valuation for whatever your intended purpose.  

Tags: Business Valuation

5 Tips to Consider when Valuing a Business

Posted by Business Valuation Specialists LLC on Oct 12, 2015 11:30:00 AM

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When you're considering valuing a business, there are a number of factors that must come into play with regards to what approach is taken and the end result. Business valuations are a complex process, but understanding how business appraisals work helps you make good decisions that will give you the best possible outcome. If you're considering valuing a business, here are some tips to keep in mind while going through the process.

5 Tips to Consider when Valuing a Business

  1. Be Prepared. When you're getting ready to have a business valuation done on your company, you need to have everything in place to make the process go smoothly. Figure out what is being included in the valuation. 
  2. Paperwork Please. For any type of company valuation, having your paperwork in order helps the business appraiser find the information they need quickly and easily. After all, their job is to appraise your company, not straighten out your files or bookkeeping system, and you don't want to pay them the extra time it takes to do so.
  3. It's All About the Method. Business valuation takes a number of different approaches. An asset-based approach is used when you need to liquidate your business. By comparison, an income-based approach is often used for growing businesses.
  4. Working Towards End Purposes. As part of the question of which method you'll use, you need to keep your end goals in mind. Waiting until the last second to know what your business is worth is a bad strategy.
  5. Do You Know a Guy? Sure, we all know somebody who can come up with a decent figure to estimate the value of something, but valuing a business is a complicated process that is best left to the professionals. You can pay a friend a little bit of money to estimate your company's value, but that valuation won't hold up in court. It also won't stand up during negotiations to sell your business for a better dollar amount or to obtain financing for your business. It's far better to get a qualified business valuation expert who uses industry standards to complete the process.

Now that you've discovered what you need to know to have a valuation performed on your business, it's time to take action.  Make sure you work with a business appraisal professional that has a Certified Valuation Analyst designation through the National Association of Certified Valuators and Analysts to ensure you get the documentation you need to succeed in your venture.

Tags: Business Valuation, valuing a business

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