Business Valuation Blog | Understanding Buying / Selling a Company

How is Non Profit Business Appraisal Different Than Other Valuation Types?

Posted by Business Valuation Specialists LLC on Jun 10, 2019 8:00:00 AM

Valuing a Non Profit Business

When you run a charitable organization, non profit business appraisal may be the furthest thing from your mind. After all, if you're not in it for profit, why does it matter what your organization is actually worth? As it turns out, quite a lot! The value of your non profit provides you with plenty of options in terms of financing special initiatives, getting your tax paperwork completed correctly and so many more important areas. Here's a look at how non profit organization appraisal is different than other types of valuations and how that impacts your company's bottom line.

 

How is Non Profit Business Appraisal Different Than Other Valuation Types?

Let's start by looking at what a non profit actually is: an organization set up through the IRS that is not focused on making a profit, but has a completely different purpose, such as providing clothing to the poor, helping veterans get back on their feet, putting out fires through a volunteer fire department, spreading their spiritual beliefs or sharing a political message. Any of these organizations do amazing work on a daily basis in making our world a better place.

However, it's important to also consider the financial aspects of your organization. Though you're not focused on making a profit, a certain amount of money must come in to ensure that the lights stay on and outreach can continue. This requires having accurate financial records of your organization's overall value.

This value spreads far beyond simple asset worth, such as the value of your forklift in the loading bay or the printer that is used to spread the word. It includes a wide range of intangible assets as well, such as your reputation in the community and the goodwill that brings about, which in non profit organizations, often translates into donations that help you keep your operation moving.

For these reasons, it's vital that a non profit be valued so that you can leverage these intangible assets. If the bank knows you have a certain amount of money coming in every month and that you're not in debt up to your eyeballs, they're more likely to approve the funding you need to open that new youth center, outreach office or operational loan to keep things moving when money is a little tight. Having a business valuation report available for them to check value against makes this process much easier.

What's more, this information helps you ensure that you're keeping appropriate levels of insurance coverage in place for your organization. Whether it's to take care of lawsuits from that opposing group across town or to take care of costs when your antiquated structure that was donated to the cause burns down, this insurance covers the cost of getting back up and continuing the fight.

Though a non profit business appraisal may be the furthest thing from your mind when you're handing your organization's daily business, it can have a strong impact on your overall operations and your ability to impact positive change in your community and the world at large. Whatever your organization's focus, consider having an appraisal performed by a certified business valuation specialist to ensure that you're able to protect your assets when it matters most, so that you can keep your good work rolling forward.

Tags: Non Profit Business Appraisal

How Does Financial Statement Analysis Benefit Your Business?

Posted by Business Valuation Specialists LLC on May 27, 2019 8:00:00 AM

Statement Analysis

What's your company really worth? If you think it's the amount listed on your latest financial statement, you may be surprised. Many businesses have inaccuracies on their books that they're completely unaware of, inaccuracies that can cause serious issues down the road when you're applying for a loan, making a court settlement or dealing with tax assessment inaccuracies. Fortunately, there's a great tool you can put to use to help find and correct these inaccuracies: financial statement analysis. Here's a look at what this entails, how to implement it and how it can benefit your company in the long run. 

 

How Does Financial Statement Analysis Benefit Your Business?

When you have your business financial statements analyzed, you're essentially having them audited for accuracy, but it goes beyond that as well. Rather than simply checking that 2 + 2 = 4 or that your books are balanced, the analysis takes a much deeper look at the accuracy of the details on your financial statements over time, then adjusts them accordingly to provide a more accurate picture of your company's overall financial health over time. This allows your income projections, net worth and similar calculations to be done in a fashion that reflects the true situation of your company.

To start the process, you'll need to contract with a reputable, certified business valuation specialist, preferably one who has some experience appraising businesses in your industry. A certified valuation specialist has been through an extensive training process that includes field experience and education in a wide range of appraisal topics, including which methodologies they should use in which situations. These methodologies have been tested extensively in a wide range of real-world situations, such as court cases, insurance claims, tax agency appeals, business sales and securing loans for operations or continued growth.

The appraiser will look at your company's financial records, check them for accuracy, determine whether some assets have been over- or under-valued in your books and otherwise consider areas where your books may not be accurate. As an example, if you purchased a pickup for your construction business and have completely written it off over a five year period, it will show no value on your books.

However, if you continue using that pickup on a daily or weekly basis as a vital part of your business, it still has value. You could sell it, trade it in or possibly even use it as collateral to secure a loan for other business purposes. If that value is not reflected on your books, that's a valuable asset you could tap as a financial resource during a time of need for your business. The business valuation specialist looks at assets like that and includes it in the adjustment of your books to reflect a more accurate financial picture for your business.

By using financial statement analysis as a tool to improve your company's bookkeeping accuracy, you can ensure that the financial reports that you're generating are providing a precise picture of your company's overall financial wellbeing. However, you can't get this analysis performed by just anyone off the street. You'll want to make sure to use a certified business valuation specialist. The certification process ensures that they know which tested methodologies to use in accurately calculating your company's value and the accuracy of your financial statements.

Tags: Financial Statement Analysis

How to Use an SBA Loan Business Appraisal to Up Your Approval Odds

Posted by Business Valuation Specialists LLC on May 13, 2019 8:00:00 AM

sba loan business appraisal

If you're getting ready to apply for a loan through the Small Business Administration (SBA), have you had the opportunity to get all of your paperwork in order yet? If you haven't, you may want to consider SBA Loan Business Appraisal. Why? When you go into the loan process with solid documentation of your company's value, it becomes much easier to get through the entire process as seamlessly as possible. Here's a quick look at the reasons behind why having a business appraisal performed on your business can help improve your odds of approval for an SBA loan.

 

How Can an SBA Loan Business Appraisal Help Your Odds of Approval?

When you have a business appraisal performed for SBA loan purposes, you're essentially having an independent third party verify the value of your company. This provides the bank or financial institution that you're working with proof of your company's value, whether you're purchasing a new business, refinancing to improve your company's footing or securing a loan to expand your operations. Working with a certified business appraiser ensures that the methodologies that they use have been tested for a wide range of reasons, including financial decisions.

A certified business valuation specialist takes a solid look at your company's financial background, your position in the marketplace, your reputation for innovation in the industry, your competition, your reputation in the community and many other aspects. They consider how your business stacks up against the average, then use that information to determine the value of your company. This is handled through a series of complex calculations that have been tested in a wide range of circles, including financial institutions, purchasing or selling decisions, tax appeals, insurance claims and courts of law, among others.

Once the business valuation specialist has gathered all of this information, they're able to compose the entire body of information into a simplified, standardized report that conveys how these aspects impact your company's overall value. This information, when provided to your financial institution, delivers verifiable proof of your company's value. Because it has been prepared by someone with experience in the standardized methodologies used to calculate business value, the report stands up to strong scrutiny and therefore is usually accepted as proof of value above and beyond any documentation you can otherwise provide.

However, that's not the end of the usefulness of your business valuation report. Once the loan has been secured, you can use the report for any number of other purposes down the road. It can be used to verify your company's average income if you have to shut down due to a disaster and make an insurance claim. It stands as proof of value if you need to appeal a bad tax assessment. It documents your company's worth if you become embroiled in a court case. There are a wide range of purposes for a business appraisal that reach far beyond simple loan approval.

When you get an SBA Loan Business Appraisal, you're able to provide solid documentation to help prove the value of your business. Working with a certified business valuation specialist means that your overall value calculation will be performed using standardized methodologies that are recognized and respected in a wide range of circles, including financial institutions. This helps make your SBA loan approval process go much more smoothly than it may otherwise, reducing the need to provide additional documentation that may hold up the process.

Tags: SBA Loan Business Appraisal

Business Valuation Methodologies: How They Differ in Appraisals

Posted by Business Valuation Specialists LLC on Apr 29, 2019 8:00:00 AM

business valuation methodologiesbusiness valuation methodologies

When you're considering determining the value of your business, you may hear the term business valuation methodologies. But what are they, how do they impact the final calculated value of your company and why is it important to know the differences between them? Here's a quick look at the most common valuation methodologies to help get you started.

What Are the Different Business Valuation Methodologies Used in Appraisal Practices?

Asset-Based Approaches

Asset-based approaches look at what a business already has in terms of tangible and intangible assets and liabilities. These assets are then used to help determine the value of the business.

  • Adjusted Net Asset Value Method - This requires the appraiser to adjust the company's assets and liabilities to their fair market value as of the valuation date. 
  • Liquidation Value Method - When a company is discontinuing operations or restructuring, the proceeds from liquidation are calculated using either an orderly or forced liquidation approach.
  • Book Value Method - Though sometimes used, this method has serious flaws. It's an accounting number based on the value of assets on the books, but when equipment is fully depreciated before it's put out of service, it doesn't reflect a realistic business value.
  • Excess Earnings Method - When a business has significant goodwill or intangible assets, this type of methodology is used to calculate earnings above a reasonable return on the business' tangible assets. 

Income-Based Approaches

Income-based approaches to valuation look at how much money the company has coming in. The appraiser uses that income and projected future growth to determine the company's value.

  • Capitalization of Earnings Method - When a company has a regular income, this method is used to convert the ongoing benefits of that business over an extended period of time to determine the overall business value.
  • Discounted Earnings Method, or Discounted Cash Flow Method - With the terms used interchangeably, this method is used to determine value when a company has irregular income, cash flow issues or inconsistent growth to determine future value.

Market-Based Approaches

Market-based valuation approaches look at similar businesses. The valuation specialist then makes adjustments to value to reflect the subject company's situation.

  • Guideline Public Company Method - Using financial data from publicly-traded companies, this methods uses the actual price investors pay for a minority interest in similar companies to the business being valued.
  • Guideline Company Transactions Method - When companies are closely held, this method is used by using the value of companies with similar characteristics, including industry, size, products, services and location, as well as transaction dates of sale.
  • Multiple of Discretionary Earnings Method - This method takes a similar company and divides the transaction value by discretionary earnings, at which point the subject company's discretionary earnings are multiplied by the same multiple that was calculated.
  • Gross Revenue Multiple Method - This method divides the transaction price by the company's revenue, then similar companies are researched to determine a multiple, which is then used with the subject company's revenue to calculate value. It doesn't account for profitability, however.

By understanding the different business valuation methodologies, you'll have a better grasp of exactly what an appraiser is referring to when they're calculating your business value. This provides you with a much better understanding of the process and calculations involved, making you a much more active participant in the process.

Tags: Business Valuation Methodologies

Why Is Steel Mill Appraisal Important to Your Business' Bottom Line?

Posted by Business Valuation Specialists LLC on Apr 15, 2019 8:00:00 AM

Steel Mill Appraisal

You've worked in the steel industry for years. You know blast furnaces inside and out, and can tell the general history of steel prices for the past several years off the top of your head. Casting and rolling are daily occurrences, and you know exactly what's involved in keeping your continuous production machinery operating efficiently. But one area of your industry that you may not know about, but is vital to your company's bottom line, is steel mill appraisal. But what exactly is a steel mill valuation and why is it so important to your company's bottom line? Here's a look at the entire process and how it can be used as an important business tool to grow your company.

 

Why Is Steel Mill Appraisal Important to Your Business' Bottom Line?

The first question many people ask when determining the value of their company is, "What is a business appraisal?" Though many companies only have one performed when they're selling their business, a business appraisal can be a valuable tool to help improve your company, allowing you to reduce overhead, increase profitability and grow your business with a great deal of success. But what happens in a business appraisal that allows you to take advantage of the information inside to this degree?

Let's start by taking a look at the business appraiser. This is a highly-trained individual who has spent extensive time in the steel industry, not only with your business during the appraisal process, but with any number of competing businesses, who may have very different processes, procedures and circumstances than your company. This provides them with the knowledge to make valuable insights that can greatly benefit your company's bottom line.

As an example, let's consider the revolution currently taking place in IoT-linked machinery. Is it as prevalent as the machinery manufacturers say? If you upgrade, will you really be getting in at the beginning of the curve, making you an innovator in your industry, or will you be somewhere in the middle, keeping up with the pack. Is it really making as strong of differences in your operation and profitability as the machinery manufacturers are saying? A qualified appraiser can let you know.

What about your finances? Are they in line with other steel mills? One of the first areas considered by a business valuation specialist is a company's financial records and where they may be accurate or inaccurate. Once adjustments have been made, they may be able to advise you whether there are areas that could be improved.

Though a steel mill appraisal can be a complex process, working with the right business valuation specialist makes the process flow much more smoothly and easily. It's also a vital one that can give you the information you need to make significant improvements to your company, such as deciding when to expand, when to consolidate and when to sell. It provides you with vital proof of your company's value for a wide range of purposes. However, these benefits are often only apparent when you work with the right appraiser. A certified business valuation specialist has the right combination of knowledge, experience and expertise to get your company's value calculated correctly and in a fashion that makes the final report bear up well to very strong scrutiny from a wide range of sources.

Tags: Steel Mill Appraisal

What's Involved in the Business Franchise Appraisal Process?

Posted by Business Valuation Specialists LLC on Apr 1, 2019 8:00:00 AM

franchise appraisal

There are some strong benefits to buying a franchise business. Your company automatically has name recognition with the national chain, some amount of marketing is already happening and you have support from other businesses like yours around the region or country. However, business franchise appraisal can have some significant differences compared to regular companies, which can impact the process of having your company appraised. Here's a solid look at what is typically involved in the process of franchise business valuation.

What's Involved in the Business Franchise Appraisal Process?

Business appraisal looks at a variety of information about a business to determine value. Generally speaking, this includes a solid look at your company's finances, its market share, the goodwill it holds in the community or industry, its reputation for innovation, your brand value and several other characteristics that make up the value of the company as a whole. However, a franchise splits many of these aspects with a national brand, making it difficult to determine what portion of the company's value belongs to the company itself versus that which is part of the national brand. This creates a number of issues with the process of appraising a franchise.

The first unique issue that is often come across in the process of appraising a franchise is the franchise agreement itself. These agreements can include or disallow a wide range of products, services, branding and materials that can either boost your business or leave you working on your own. This can have a strong impact on your company's overall value and must be carefully considered. How high is your royalty and advertising allowance?

The assignment of particular regions for a franchise must also be taken into account. Do you still have room for growth in your allotted region or is your market saturated? If there's room for growth, you can grow your overall company value by reaching out into new areas that you may not have tapped before. If there isn't, you'll need to explore new markets and sectors to break into in order to achieve any significant growth with your company.

What about your rights to sell your franchise? Some franchises are very tight in disallowing the sale of a franchise business to a third party in any fashion. In other circumstances, you may need to get franchise approval before making a sale, whether it's to vet the incoming owner or simply control the market more tightly. That doesn't mean you can't have a valuation performed in the event of a partnership or marital dissolution, making estate plans, dealing with tax agencies or similar circumstances. It does, however, create some unique circumstances that must be taken into account in the process.

Your franchise business is unique, but its approach to the market requires some special steps be taken in the valuation process. Though business franchise appraisal can seem like a complicated process, it actually has a set of logical calculations to come up with an accurate value for your company. However, this process is best completed by a certified business valuation specialist who has had the training to understand the fine nuances that can mean the difference in thousands of dollars of value for your company. Be sure to ask about your appraiser's qualifications prior to hiring them for the process to ensure your investment is well-spent and provides quality results.

Tags: Franchise Appraisal

How Does the Valuation of Partnership Buyout Help Both Sides in a Dissolution?

Posted by Business Valuation Specialists LLC on Mar 22, 2019 8:00:00 AM

 

partnership buyout business appraisal

When you're dealing with the dissolution of a partnership, there are any number of issues that you need to deal with over the situation. However, one option you have to help deal with determining the value of the leaving partner's share in the business will help you through the process more easily. By getting the valuation of partnership buyout calculated by a professional business valuation specialist, you can focus on more important parts of the dissolution process, such as allocating duties and clients of the departing partner. 

 

How Does the Valuation of Partnership Buyout Help Both Sides in a Dissolution?

A partnership dissolution is a difficult process. Duties must be reassigned across the entire enterprise in a way that makes it possible to continue operations as seamlessly as possible. Clients must be contacted and moved on to other partners in a fashion that keeps them happy with the process. Their specific responsibilities of that partner must be audited for any number of issues that may have arisen over the years of operation. Any changes in staffing that needs to happen with the change of partners should be addressed before the partner leaves the firm.

Another area, one that is often the most contested during a partnership dissolution, is the value of the business and the value of that partner's buyout. The partner who is leaving may have invested significant time, effort and energy into the overall process of building up the business. They may have brought business to the company when they joined or built it up through their reputation for innovation or excellence. It can be a very difficult process to determine what that portion of the company's value should be allotted to that partner.

What's more, a partner who is leaving a company may feel that they deserve a reward, after a fashion, for all of their hard work. However, the remaining partners may feel that this is unfair to the remaining partners who are continuing to stay with the business in the future, and a fair distribution of the company's value requires that all parties be treated fairly. Additionally, there could be any number of other factors that have shifted the estimated value of the company over the years.

For this reason, having a partnership buyout valued provides that fair value for your business partners. It allows a third party to independently determine the overall value of your business as well as the departing partner's share in the business. It gives you the opportunity to get past the point of bickering over the potential value of the business and who is owed what in favor of fair market value. This value is determined by a trained, experienced professional who will be using methodologies that have been in place for decades in years of testing across many situations.

By having a valuation of partnership buyout performed, many companies are able to more easily get through the process of a partnership dissolution by avoiding problematic issues surrounding business value. However, if you want to ensure that you don't have to repeat the process, make sure that the calculations are performed by a certified business valuation specialist. This ensures that the report they generate follows established, tested methodologies that have been carefully developed over the years.

Tags: Partnership Buyout Business Appraisal

A Business Owner's Guide to Selling a Business in 2019

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

business_sale_valuation

If you're considering selling a business in 2019, have you considered all the factors that come into play in maximizing your profit? If you've put years of equity and your own personal effort into building a company, isn't it worth putting a little more effort in this year to make sure you're getting everything it's worth? This guide will help you make the most of your business sale by showing you how to go about that process to ensure you're getting everything you can from your business.

A Business Owner's Guide to Selling a Business in 2019

  • Consider why you're selling. Are you selling because you're in a desperate situation with your company? If you are, it may not be the best time to sell to maximize your value. Consider alternatives such as bringing in fresh talent to turn the business around or provide additional support while you work through a health crisis or family issues. This may make it easier to keep your business and make it profitable again.
  • Start the sale process by getting your paperwork in order. Is your bookkeeping up to date and accurate? Are your assets accurately portrayed in terms of value in your books? Do you need to update other documentation, such as who is in charge of which portions of your business or your business processes in your manual? Make sure that this paperwork is up to date and ready for any potential buyers.
  • Deal with any obvious problem areas. If you have a large portion of bad debts, consider calling them in, writing them off or using an outside agency to collect on them. Do you have old equipment lying around that needs to go? Get it sold first. Only when you've dealt with these issues is it time to consider talking to a professional.
  • Have a business valuation performed to find hidden value potential. When you work with a business valuation specialist, they prepare a report that includes areas where your company is strong and where it is weak. Make sure you work with a certified valuation specialist to ensure the accuracy of the information.
  • Improve the areas recommended on the report. Once you've received the report and have clarified any areas where it may be inaccurate, start acting on the areas where your company is weak to improve them and solidify the areas where it is strong to retain the value they provide to your bottom line.
  • Get a secondary business valuation report prepared. Once the improvements are made, have a secondary report developed so that you can make sure you've maximized your company's potential value. It's only at this point that you should ask for recommendations for a reliable, reputable broker and interview the best to find the right fit. 

By taking the time to go through these steps, you can ensure that selling a business in 2019 is as painless a process as possible while maximizing your company's potential for profitability in the sale. Don't assume that simply listing your company for sale with no further preparation is in your best interests, but use the advice of a certified business valuation specialist to make improvements that will have a real impact on your final sale price.

Tags: Business Sale Valuation

What's Different When Valuing a Printing Company?

Posted by Business Valuation Specialists LLC on Feb 22, 2019 8:00:00 AM

Valuing a Printing Business

 

Every day, businesses are appraised to determine their value for a wide range of purposes. However, valuing a printing company can be a very different situation, because they have a number of aspects that are different from other businesses. These factors can make a huge difference in the final value that is determined in your company. But what are these factors and how do they impact your company's overall value? Here's a quick look at the overall process and what factors are different.

 

What's Different When Valuing a Printing Company?

  • No two printing businesses are the same. For that reason, it's important that all of the aspects of your business be carefully considered by the business valuation specialist before they can calculate the value of your company. This process takes a certain amount of time while every factor is considered, including market share, annual income trends, innovations within the company, community goodwill and much more.
  • Smaller printing companies with a solid, defensible niche may see a higher level of profitability due to that level of specialization. This is quite often reflected in an overall higher value, but other factors will come into play when the total value of the business is calculated by the valuation specialist.
  • What's the size of your printing business? Generally speaking, larger commercial printers tend to have a much higher calculated value because they take on larger jobs, have a lower overhead cost, are able to procure supplies and equipment at lower costs and have a larger production turnaround on an annual basis.
  • Printing companies tend to hold a higher value because they have a higher amount of profitability over time. Printing companies with profitability between 10-15% tend to be valued at higher rates because this level of profitability is considered desirable by prospective business owners, making them more likely to spend more to acquire a printing business than similar service companies.
  • What is your printing company's industry segment? At current, lithographic printing companies make up the largest segment of the market and still have good growth prospects. However, that doesn't mean you should turn your back on digital printing, a segment of the industry that is seeing strong growth as more and more businesses push towards digitization and more flexible operations.
  • Because of the strong need for printing services, printing companies have a low customer concentration. This means that you probably have a large number of smaller clients, rather than a few large clients. This particular makeup, specifically focusing on having no more than 10% of your total revenue tied up in your top five customers, helps to maximize your overall business value. If one or two clients have a rough year, the others take up the slack.

As you can see, there are a wide range of differences when valuing a printing company that must be taken into account when trying to determine that business' value. When you work with an appraiser to determine your printing company's value, you need to make sure that the appraiser knows their business. Working with a certified business valuation specialist ensures that the appraiser has the experience, expertise and knowledge to get the job done correctly the first time, using practical calculations that have been developed through practical methodologies and tested in a wide range of situations.

Tags: Valuing a Printing Company

The Craftsmanship Involved in Valuing a Craft Brewery

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

Craft Brewery

When your business is brewing, it's easy for your daily operation to take you away from considering the value of your business. But valuing a craft brewery is a difficult process at best, one that involves art, science and a certain amount of craftsmanship. But exactly how is a craft brewery different than other types of businesses and how will those factors impact your bottom line when you're dealing with a tax agency, court case or selling your company? Here's an in-depth look at the process and how microbreweries are different than other businesses.

The Craftsmanship Involved in Valuing a Craft Brewery

Microbreweries have been showing up more and more recently, with the paradigm shift in our society placing more value on quality over quantity. This shift has brought these types of food service businesses into the limelight and made them popular in terms of both market share as well as value. This is among the reasons why it's vital that when you have your craft brewery valued that you use a certified business appraisal specialist to handle the process.

Think about it for a minute. Restaurants have been around for centuries, so determining value is fairly straightforward, though it can still be miscalculated by the average real estate agent or other individual who has not been through the stringent training process that certified appraisers have been through. However, microbreweries are a newer iteration in the industry. The various factors that will impact their value are still being determined to a certain extent, and only business valuation specialists who go through training and updated education to stay on top of these factors are able to provide an accurate valuation of your business.

Among the aspects that are impacting craft brewery values are intangible assets. These are specific aspects of a business that do not have a direct, tangible value, such as a table or brewing vat, but value which is built on reputation, goodwill and similar aspects. Think about when you last went to a really great microbrewery. You'd probably heard something about it in the area from locals or saw an article about it that caught your attention. Maybe the brewery had a great award for a specific brew.

It could also be that the brewery has done a lot in the community to build up charitable organizations and volunteer groups. There are any number of other ways that a craft brewery increases its intangible assets and value. However, this is a difficult value for many individuals to calculate, especially given the complexity of the process involved. How do you put a figure on the hoppy flavor of an IPA? What's the value of that best in class ribbon hanging on the wall? Working with an experienced business appraiser is the best way to work out the value of these intangible assets.

Your microbrewery is as unique and creative as you are, and that reputation deserves to receive a fair value when you're working on the business side of your company. Valuing a craft brewery is a difficult process, one that requires careful attention to detail and solid experience with both the industry as well as the nuances of the business itself. Be sure that the appraiser you're trusting the process to is certified to ensure they have the needed knowledge to calculate an accurate value for your business.

Tags: Valuing a Craft Brewery