Business Valuation Blog | Understanding Buying / Selling a Company

Business Valuation Specialists LLC

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Expert Witness Testimony in Valuation

Posted by Business Valuation Specialists LLC on Mar 25, 2024 7:30:00 AM

Business Appraiser Expert Witness Testimony

One of the most challenging components of a professional appraiser’s practice is being an expert witness in a court trial, hearing, deposition, or arbitration. Regardless of how many years of experience an appraiser has, or how many times they have testified, this can be a very difficult process to go through.

Many accredited, professional appraisers rely on business and personal dispute work as part of their overall revenue, and, commonly, a significant percentage of their work involves clients who have hired attorneys to represent them in a litigation matter. The importance of providing an independent, unbiased, opinion of value is critical when business disputes arise, as damage and liability claims need to be reasonably determined. With difficult partner buyouts and divorce cases, there are rare circumstances where a fair division of assets during a separation can be negotiated without the need for a third-party valuation.

Based on my own experience, on average, 35-40% of our engagements involve these kinds of cases. Fortunately, once the initial work has been completed and reports delivered, many of them settle before formal hearings take place. There are, however, those cases that do not, and testimony becomes inevitable.

Since the pandemic, the courts have been trying to catch up with a lot of older casework, while business and personal disputes have accelerated since the recovery. I have testified more in the last 3 years than I have in the 10 years prior, and there is no slowdown in sight.

Fortunately, there have been a few efficiency improvements in the process, the most important of which has been the ability to testify remotely. The additional time and expense involved with traveling has been eliminated in most cases, which benefits all parties involved. The reduced stress that goes along with the travel component of being an expert witness is also a boon to professional appraisers.

Based on my experience, and in discussing this topic with attorneys, I believe the efficiencies involved with remote testimony have not lessened the effectiveness of the process, which leads me to believe this alternative will be around for the foreseeable future.

Regardless, testifying as an expert witness will always be a challenge for valuation experts. There are courses available to appraisers that assist with understanding the process, developing strategies, and gaining key insights to be more effective, however, no matter how many classes you take, or how many times you testify, you will probably always feel like you could have worded something a little differently in a certain part of the testimony. Appraisers should take as much as they can from each experience and strive to become more adept for the next one.

Tags: Business Appraiser, expert witness

Your Business Appraiser Does Not Need to be Local

Posted by Business Valuation Specialists LLC on Mar 11, 2024 7:30:00 AM

Small Busines Owner Happy with Business Appraisal

There is a misconception in the valuation industry, which some of our clients express their concern over, that their appraiser needs to be located in close proximity to where their company is situated. It is understandable that a small business owner, who themselves may have several local relationships with their own clientele, would raise this issue; however, the fact is that experienced, certified professional appraisers can effectively value any company, regardless of where it is located, and what local markets it may be operating in.

During the valuation process, a qualified appraiser will work with their clients in a “hands-on” fashion to gather all the specific company information needed to complete an accurate and supportable analysis, and ultimately deliver a full narrative report. Each client has the opportunity to discuss the details of their company that go beyond the black-and-white picture created by their tax returns, income statements, and balance sheets, allowing for reasonable adjustments to be made that paint a more colorful, complete, and truer picture of their business.

The appraiser has access to market and industry data across every region in the country and will take into account the nuances of how the company works within these areas, in relation to their competitors and client base. They will look to understand the specific strengths and weaknesses the business has, as well as their ability to leverage the former and improve on the latter. Future growth plans will be considered regardless of whether they are aggressive, modest, or even negative.

Based on the sum total of the data provided, an educated, trained, professional appraiser considers the same set of consistent approaches and methodologies for every valuation and determines how best to apply and weigh each one specifically to the business. The underlying assets of the company will be taken into account, as well as the specific purpose and effective date of the appraisal.

As you can see, the appraisal process is a collaborative effort that relies upon both the independent valuation professional and the business owner/representative to work together and develop a complete snapshot of the company. By the time the project is over and the report is delivered, it will become clear how well the appraiser understands the business, even though they weren’t local to the area.

Tags: small business valuation, certified appraisal, business appraisers

How Technology Has Made Businesses More Efficient and Effective

Posted by Business Valuation Specialists LLC on Feb 26, 2024 7:30:00 AM

Small Business Owner Using Technology

It seems not that long ago (although it was!) when running a small business or even working in a larger corporate environment involved a ton of phone calls, writing, typing, and mailing hard copies of letters and documents, while advertising in local trade journals or yellow pages. Over the past couple of decades, advances in technology have allowed companies to operate faster and much more effectively, providing additional opportunities to develop and grow a small business successfully.

Of course, we all know how email, cell phones, and the internet have vastly improved our professional lives, however, you may not be aware of all the tools available that can create even higher efficiencies within your organization.

Have you created a paper-free environment in your business? Yes, hard copy files may still be required for certain companies, but many small businesses can create documents, obtain e-signatures, process payments, and deliver products without ever printing or writing a single word by hand.

Internal accounting functions can all be handled online with the best software products available. Saving and managing files in a cloud-based format can retain them forever with virtually unlimited storage capacities while making them instantly accessible.

An effective website with good search engine optimization (SEO) can virtually eliminate the need to make “cold calls” and have a constant flow of new business opportunities for your products and services. Think about adding an inquiry form for clients to fill out on your site and a centralized voice mail system that all feeds into your email as soon as they reach out to you.

Manufacturing companies have started to integrate artificial intelligence into their production process. This will continue to advance and result in even better-quality goods created at faster rates. Think about how AI can help your small business become smarter and more efficient.

It's no wonder that remote work, especially with service providers, has become the norm, even well after the pandemic. The days of sitting around an office in seemingly endless meetings or wasting valuable time chatting with co-workers around the water cooler are a thing of the past.

It’s all about who can deliver the best product in the least amount of time at the best price. To give your company an optimal chance of becoming one of those who compete in that type of environment, think about taking advantage of the numerous available technological advancements out there. The cost to implement most of these options is not very high, especially in comparison to the potential increase in output and revenue for your small business.

Tags: small business, technology

Small Business Owners: Keys to Success and Longevity

Posted by Business Valuation Specialists LLC on Feb 12, 2024 7:30:00 AM

Small Business Owners Key to Success

For new business owners, it can take years to finally reach a point where a certain level of success is reached, and all the hard work and long hours finally pay off. Success is measured in different ways and can be fleeting or inconsistent. There are many reasons why success is eventually achieved, the most obvious being dedication, relationship building, and developing a competitive edge that sets your company apart from the rest.

In today’s business climate, there are both new and old concepts to consider when developing a longer-term game plan. The key to longevity is understanding and taking advantage of these areas and building a business model that creates optimal efficiency and effectiveness year after year.

Here are a few to think about:

Website Development and Search Engine Optimization (SEO)

Small businesses no longer need to rely heavily on word of mouth and referrals to grow their business and attract leads. In today’s climate, there are a lot of potential customers who will simply search the web when they need products or services. Even local businesses that have a small regional customer base will benefit from having a great website and SEO model that drives their company toward the top of “Google” searches. It’s the simplest and fastest way for customers to find what they’re looking for so take advantage of it. Consider upgrading your website and its searchability to increase your volume of leads.

Key Employee Retention

You can give yourself as much credit as you deserve in succeeding with your small business, just don’t forget the others who have helped get you there. When you are fortunate enough to have key employees who work as hard as you do and fit into the model that you are building, don’t let them go. Great workers don’t grow on trees and can be just as critical to the company’s growth as you are. Do what it takes to retain them and acknowledge their importance to the business.

Maximize Your Cash Flow

If COVID taught us anything, it’s developing a business that can sustain itself when revenues are down over a steady period. While that experience might be an anomaly, you should consider structuring the financial side of your business so it can remain healthy during slower revenue periods without constraints on making payroll and fixed expenses. Think about stashing some funds away, restructuring your debt, or leveraging some equity you might have in real estate or equipment. Don’t overinvest in long-term projects that might have additional risks associated with them. In other words, manage your money for the long term and you will have a greater chance at continuing success.

Tags: business owners, small business, success

Small Business Owners: Don’t Prioritize Price Over Quality!

Posted by Business Valuation Specialists LLC on Jan 29, 2024 7:30:00 AM

 

Business Appraisal Quality vs Price AppraisersBusiness owners are constantly having to review their annual expense budgets for both fixed overhead and variable costs that arise from new projects and demands that come up in any given year. It is common for decisions to be made based largely on who can deliver the lowest price, especially in a competitive market where the product or service needed can come from a multitude of vendors.

This strategy might save you money in the short term however, there is oftentimes a loss in quality that comes with working with the cheapest option that can come back and haunt you later on. Quality can be measured in more ways than one, and it’s a good idea to think about what’s most important when it comes to working with your providers before deciding on who to engage with.

Here are some areas where quality can justify paying a higher price:

Customer Service from Start to Finish

Who is communicating with you most effectively and consistently when you are inquiring about purchasing the product or service? Are they making you feel like their most important client from day one, even before you commit to working with them? Do they follow through with that same level of communication and delivery after you’ve contracted with them? If the cheaper price leads to poor customer service and late deliveries, then take your business elsewhere.

Reliability of the Product or Service

Are you ultimately receiving the best, most dependable product that you expected and required to satisfy your business’s transactional needs? What are the costs to your business if you receive an inferior service? Do you potentially suffer a hit to your own company’s reputation or end up on the losing end of a business dispute due to poor quality?

Your Own Time and Effort Costs Money

Will working with the cheaper vendor be more time-consuming for you or your employees? Does the more expensive provider have greater experience and display a more professional, take-charge persona that will save you time and effort, which translates into cost efficiency for your business? This type of savings can be significant in comparison to the money you saved by purchasing the lower-priced product.

In summary, consider the benefits that will likely go along with choosing quality over cost, especially if you find the cheaper alternatives are not all they’re cracked up to be.

Tags: Business Valuation, business appraisers, quality

Do You Want to Be Your Own Boss or Prefer Partnerships?

Posted by Business Valuation Specialists LLC on Jan 15, 2024 7:30:00 AM

Successful small business owner

 

Being a small business owner is both exciting and stressful and has significant benefits and responsibilities beyond a typical employment position. Taking on all of the ownership responsibilities yourself or considering a partnership is a critical decision you may need to make at the beginning of the venture and afterward, once the company has been operating for a number of years.

Circumstances may decide this for you, or you may have more control over the process. Either way, here are a few things to consider when thinking about what is best for you.

Can You Manage Everything on Your Own?

This is probably the first thought that goes through your mind when starting a new business or potentially buying out existing partners. Do you have the experience, drive, and time to accomplish the day-to-day operations involved with 100% ownership? The answer will rely in part on the structure of the operation and how much you can delegate to employees, as well as your general desire to answer to no one but yourself.

Do You Have the Capital to Invest and Maintain Adequate Cash Flow by Yourself?

This is especially critical in the early stages of operation when you are trying to establish the business and before you have developed the levels of revenue to sustain and grow. Most business owners should expect a drain on their personal funds during this period unless they bring in working partners or silent investors to alleviate the burden.

Are You Having Trouble with Certain Partners?

This issue might be the most challenging one you face as a business owner during all phases of development and growth in the company. Bringing in the right partners and investors who match your goals, complement your skill set, and seamlessly get along with you both personally and professionally might seem like an impossible task. Developing and maintaining a high level of trust and compatibility with other people in business and life is something we all strive for but is rare to find over the long haul.

If you do, work hard to hold onto those relationships and continue to be successful. If philosophies change and you find yourself constantly butting heads with existing partners, you may have to decide if a change makes sense for the better of the business and yourself. Being your own boss is generally thought of as a great situation, especially later in your career, when you have all the tools to be successful. Many small business owners have found the right formula to work well with their partners and share the burdens and successes of ownership.

Tags: partnership, business owners, small business, success

Be Proactive: Don’t Wait for a Reason to Value Your Business

Posted by Business Valuation Specialists LLC on Jan 3, 2024 7:30:00 AM

small business owner needs valuation by appraiser

With 2024 in mind, many of us vow to change a habit or two and get a fresh start on improving our way of life with the proverbial New Year's Resolution. This change in mindset can often be fleeting when the thought process does not materialize into instant benefits after minimal dedicated work effort. The brain can quickly adjust back to telling you that everything is fine, and you feel pretty good about yourself.

The same can be said for your business where it is much simpler to continue with the old way of doing things, especially when the year-to-year results are solid, and you and your staff seem content with current operations. There might not be any reason to overhaul your business model, however, you can always be more proactive in looking ahead and tweaking a couple of things based on recent experiences and increased knowledge.

One of these adjustments should involve not waiting for a reason to take a concrete look at your company and establish a baseline value, so you can better measure the real worth of all the effort you’ve put behind it over these past years and create a tool that can monitor progress in the future. Obtaining an independent, professional appraisal of your business is always a good idea, regardless of what might otherwise force the need to complete one as part of a pending transaction.

Most business owners wait until they absolutely need to have a valuation done, in complement to such things as bringing in or buying out a partner, a personal divorce, or refinancing debt to obtain working capital. As a result, there is a sudden rush to get it completed, and the added pressure of working through the process can further stress an already time-consuming and tedious situation.

If you have already recently completed a valuation, while using an experienced, accredited appraiser, it is simply a matter of sharing this report with the appropriate parties and immediately checking the box for this requirement. Advising your valuation expert that the purpose is for “internal business planning” will allow you to utilize the report for most of these future developments. Getting into the habit of updating the business valuation annually will make it more certain that the results are current and will be sufficient for any third party to review and consider as part of the larger transaction.

Being proactive is generally considered a benefit in your day-to-day life. Having a similar game plan when it comes to your business is just as important, if not more critical when it comes to continued success.

Tags: Business Appraiser, value of a business, small business valuation, business owners

Valuations for Divorce Purposes-Avoid Getting in the Middle

Posted by Business Valuation Specialists LLC on Dec 18, 2023 7:30:00 AM

Divorce case Business Valuation Appraiser

As certified, professional business appraisers, we engage with quite a few clients and their attorneys who are going through a marriage dissolution/divorce and need to value a business owned by one or by both parties involved. The workflow process should not be much unlike any other type of valuation; however, the potential “drama” that often occurs during divorce proceedings can sometimes bleed into the ongoing communication.

If this happens, it is important to take a step back and reaffirm how the appraisal agreement is structured, and who your client is. As a rule of thumb, never allow yourself to be dragged into any disputes between the two parties that play out during your involvement with the case. Remember that you have been hired to act as an independent service provider who is there to facilitate part of the divorce settlement by providing an unbiased opinion. You have no personal or professional investment beyond this scope of work.

If your client is one of the ex-spouses and/or their attorney, all communications should be with these parties only. If representatives from the other side contact you looking for information, you should advise them that all comments or inquiries be made to your client directly, and kindly request they not to contact you further. Immediately notify your client of the situation and ask them to intervene and gain control over it.

Even if your client does not own the business, they are the ones who will need to obtain the necessary documentation required to complete the appraisal from the party that does. Even in rare cases where the divorce is amicable and both sides cooperate fully, you should ensure all communication and data come from your client only.

Another scenario would be a co-client agreement, where you now have to deal with both sides agreeing to the valuation, signing, and paying their share of the fee. This may be a court-mandated arrangement, and working through this process will likely be even more delicate. You will have to carefully manage communications with both parties and possibly their attornies without getting caught up in the residual emotions and disagreements.

You may want to avoid these types of engagements altogether given the amount of management they will likely require; however, if you do find yourself in this scenario, consider organizing a joint call or email with clear instructions on how you plan to handle the process flow. There is added responsibility on your part, and you will need to develop a streamlined way of getting the requisite information to complete the appraisal.

Either way, working through a business appraisal for divorce purposes will always have the potential of being a uniquely challenging project.

Tags: Business Valuation, Business Appraiser, divorce

Business Valuation: Working Through the Process is a Two-Way Street

Posted by Business Valuation Specialists LLC on Dec 4, 2023 7:30:00 AM

Small Business Owner and Appraiser working on valuation

When you decide your company needs to be valued for whatever reason, whether you are seeking additional working capital, taking on new investors, buying out a partner, retiring, or in the middle of a personal or professional dispute, you want the end result to be supportable and reasonable.

It’s important to keep in mind that the appraiser you select knows little to nothing about your business until you begin to communicate and share information. The first half of the process will be a fact-finding mission, with the goal of providing sufficient financial data and other key information to the appraiser, while they suggest to you the best approaches and methodologies to take.

This level of communication and data flow will also present the valuation professional with a better understanding of the larger picture, whether that involves a critical transaction you are trying to close, the settlement of a divorce or partial buyout, or providing you with a value that can be presented to potential purchasers in the open marketplace.

A third-party valuation is independent and unbiased; however, this is the chance to present your individual perspective as a business owner so the appraiser understands what you’re trying to accomplish, and certain variables that only you may be aware of that could influence the outcome. Trust that the professional working with you will understand how best to consider all the potential adjustments and make reasonable decisions in the overall scheme of their analysis.

As a result of these meaningful communications, the second part of the valuation, which involves the appraiser’s review, research, analysis, and report writing, will result in a thoroughly examined and reliable outcome. It likely will also end up being more in line with your expectations. No business owner wants to go through the effort of working with external consultants and service providers only to end up with surprising, undesirable results.

Many business owners might believe the value of their company is more than what the market might dictate; that’s just human nature. However, the more the appraiser understands your experience and specific history working every day as the head of the company, the more likely the final value opinion will be in line with your expectations.

Before you commit to a specific appraisal professional, spend time discussing these kinds of topics so you feel comfortable that you will be working with a well-balanced firm that understands the important factors that go into a business valuation.

Tags: valuation, business appraisers, business owners, small business

Business Valuation: Differing Reasons Will Dictate Methodology

Posted by Business Valuation Specialists LLC on Nov 20, 2023 7:30:00 AM

Business Appraisal Methodologies to calculate value

I hear the phrase “the value is the value” oftentimes when discussing appraisal work with those not familiar with the profession. With machinery and equipment appraisals, the primary differences in value are fairly straightforward. They tend to correlate to the approach you most heavily rely upon and the definition of value that's estimated. Fair Market Value - Installed will drive a considerably higher value than any type of liquidation premise.

With business appraisals, it goes even further. Liquidation value is typically not a factor assuming the company is ongoing; however, the specific reason why an appraisal is needed will dictate the appropriate methodology and approach that best fits that perspective.

For example, if the purpose is for an outright sale of the company in the open market, the appraiser might need to back out the on-hand cash and liabilities from the balance sheet given the likelihood that the seller will cash out the liquid assets and be obligated to settle the liabilities at closing.

If the purpose is for a minority share buy-out or buy-in, the business appraiser will need to consider applying lack of control discounts to the overall value of the business when calculating the percentage share associated with the transaction. In other words, if 100% of the business is worth $500,000, a 20% non-controlling share will be less than $100,000, given the minority investors’ lack of control.

Another example may be a divorce scenario, where the company is being valued as part of a contested or negotiated division of assets. There may be factors pertaining to the ongoing litigation or settlement that will need to be considered before finalizing the value.

From a methodology perspective, it is quite often that a business appraisal can be reasonably valued using more than one approach. How these differing conclusions are weighed will factor into the overall estimate of value.

There is always going to be a level of subjectivity with any appraisal. Opinions will differ, depending on the data that is relied upon, the methodologies ultimately utilized, and the experience of the appraiser, who needs to make reasonable decisions to conclude on value.

When you need a business appraisal, take the time early in the process to cover these topics so you understand the approach that will be taken and ensure the methodology fits the overall purpose driven by the larger transactional picture.

Tags: small business valuation methods, Business Valuation Methodologies