Business Valuation Blog | Understanding Buying / Selling a Company

When you're working in retail, consumer confidence and market uncertainty can make all the difference in whether your business is operating in the red or in the black. But how do you adapt to changes in the market? One option to consider is valuing a retailer, which allows you to get a better grasp of your business' exact circumstances, including where it is strong and where it's weak. By having this information, you can then adapt to changing market conditions and position your business to take advantage of high points in the market while riding out the low ones. Here's a quick overview to help get you started.

How Valuing a Retailer Helps Your Business Navigate Troubled Markets

Though many business owners only consider business valuation when they are considering selling their retail business. But the information gained during a retail store valuation can actually provide you with valuable insights into your business' operation, assets and liabilities. This, in turn, gives you the tools you need to get your business through the difficult times while taking advantage of growth opportunities in the good times. How? Here's a sample of some of the information you might see on a standard retailer business appraisal.

Your business has squeaked through the economic downturn and now you want to consider growing your business by adding a new location or merging with a competitor that hasn't done as well. In preparing to take these steps, you need to know what your business is worth, whether it's to secure the financing you need or to know where you stand in comparison to the competitor. By knowing this information, you can better negotiate with a bank or the other business.

But when you receive the appraisal report, you realize there's a lot more information on there. There's a detailed report on your market sector as a whole and its anticipated growth or loss in the upcoming year. A look at your competitors is included, detailing where and how they compare to you in the market. Your assets and liabilities are reviewed, giving you valuable insights into the machinery you need to replace that is failing or the innovative approaches to customer support that strengthens your business' overall stance in your sector. It takes a look at your online presence and your level of digitization, as well as how that capability is expected to allow your business to expand into new markets.

When you have this information available, you may be able to better determine whether that merger is a good idea or if you should pass in favor of expanding your company's online retail presence. You'll have the documentation you need to get that loan for a new location or to expand your business' digitization process. You can make smart, informed decisions on what needs to change in your company to boost its performance and where you should continue to invest to see strong future growth. All this information is just a report away.

Valuing a retailer is one of the best ways to gain valuable insights into your business. These insights, in turn, give you options that allow you to adapt it to meet changing market demands. By knowing exactly where your business stands, you are better prepared to meet these market changes and reap positive benefits from them.

When your industry is going through changes, how do you keep your business competitive? Though valuing a service company is something often reserved for the sale or closing of a business, it can actually provide you with valuable insights into your business. These insights allow you to make changes to your business to grow its value and remain competitive in the industry. Here's more information on how a business valuation helps in this process.

How valuing a service company helps you stay competitive

Service companies often go through a number of shifts as new technology and customer demands change the overall landscape of your industry. How do you remain competitive as these changes take place? One way is by having your business appraised to see where it is strong and where it is weak, not only within your business itself but also with its position in the market.

As the market changes, business valuation specialists spend a great deal of time following these changes, seeing which changes are successful for the businesses and industries involved and which ones cause problems or unnecessary risk for the businesses involved. When a business valuation is performed, the appraiser can determine where your business is with these changes. They can help you determine which changes will benefit your business and which ones should be passed on.

But what is a business valuation specialist looking at in your business? They'll take a good look at your financial and operational history as well as consider the future.

By being aware of where your business is at today, you can then create a plan of action to improve areas where your company is weak and to take advantage of areas where they are strong to create real growth within your business. Regular business valuations allows your company to more easily see shifts in the industry and successfully navigate the changes as they occur.

When you go through the process of valuing a service company, you can quickly determine what you need to change to make your business more competitive and create dynamic growth.

When you run a logistics business, keeping moving is just part of how things are done. But digitization and disruption are causing significant problems in all industries. Valuing a distribution company can give you the tools you need to meet these new challenges successfully and come out the other side shining. Here are some basics about how to benefit from a professional business valuation.

How valuing a distribution company helps your company through digitization and disruption

When a business is appraised, did you know that you learn a lot more than just the monetary value? That's because that final value is tied into so many different aspects of your business. A certified business appraiser spends a lot of time learning different methodologies and standardized ways of determining value based on tried and true methods. The information that appraisers include in the reports they generate can help you create a strategic plan of action for your business, whether it's how you'll operate for the next year or a longer-term vision of how your company will transition to digitization.

Digitization requires your business to be adaptable and agile, something that many distribution companies already do well. But it also requires innovation and a higher level of technology and transparency. New business models are taking advantage of the disruption of traditional logistic businesses by providing different services or options than have been available in the past. This is typically because of the new company's focus on higher levels of connectivity, data and technology.

A good business appraiser will look at where your business is strong and where it is weak. They can tell you what some of your competition may be doing and how you can keep up with the changes in the market. While you may think your business is doing well in terms of fulfillment, a business appraiser may be able to tell you how your competition is changing the layout of their warehouse to speed up the process and gain an advantage in the market. 

What about your digital resources? If your systems are older, they may not be able to keep up with the demands of digitization. A business appraiser who has experience in the logistics industry will include the value of those systems in their report, giving you a starting point to determine what you'll need to budget for upgrades or replacements during the digitization process. This allows you to start looking at the tools you'll need to make the switch.

How is your market changing? When a business appraiser performs a valuation, they have to take a good, hard look at the supply chain industry. Is your business considered an innovator in the sector? Is it known for going above and beyond in providing exceptional customer service? Do you have better resources or a more strategic location than your competition? Any of these factors can help your reputation in the industry, a reputation you can lean on while introducing new services or more flexible shipment options for your clients.

By valuing a distribution company, you can ensure that your enterprise can weather the changes of disruption and digitization successfully. A professional business valuation specialist can provide you with the insights you need in a timely fashion. Take advantage of these insights to prepare your logistics business for a beautiful tomorrow.

You've worked hard to grow your small business, and now you want to sell it and reap the rewards. To do this, you'll need a business valuation expert who understands the best ways to value a small business like yours. When it comes to valuing a small business, some appraisal methods work better than others. Get our recommendations to understand your best options for obtaining a fair market valuation in anticipation of selling your company. 

Which Appraisal Methods to Use When Valuing a Small Business

These methods provide accurate, timely valuations for small businesses. They are flexible, fair, and easy to understand: 

• Earnings multiplier method - This income-based valuation method works well for robust small businesses that will be sold on the open market. In this approach, the small business appraiser takes a multiple of the company's earnings potential, which can then be used to determine a business value or asking price. This approach is transparent, tangible, and easy for both buyers and sellers to grasp.
• Discounted cash flow - This method often makes sense when small businesses experience inconsistent earnings over time. If your small firm oscillates between peak years and lean years, a discounted cash flow appraisal can help even things out, thus capturing a fair value. In this method, all future earnings are translated into present value to determine a small business valuation. 
• Market-based - A small business in a unique or growing industry can benefit from a market-based evaluation. This is frequently true when an industry has under performed in the past, but is revitalizing or enjoys a promising forecast for the future. In this situation, past earnings may not reflect the accurate future earnings potential of the business. By contextualizing the small business value in market terms and comparing the company to comparable firms that have sold recently, a business appraiser can accurately capture the business's fair market value for buyers and sellers alike. 
   

Which Appraisal Methods to Avoid When Valuing a Small Business

It is generally ill advised for small businesses to use the following business valuation method: 

• Asset-based valuation - While an asset-based valuation may seem like an effective way to measure a small business's worth, it is rarely recommended. This process can oversimplify things. One exception to this rule is for liquidation purposes. If your business is closing, or if you are filing for bankruptcy, an asset-based valuation may be the right choice.

While there are exceptions to every rule, ask your appraiser to explain why they would recommend moving forward with this approach. In general, an appraiser should be able to sit down with you before the appraisal, explain the process, and answer any questions you have about what to expect from the process. A good appraiser wants to provide you with useful and unbiased information that will help you with your next steps. 

To create the most leverage for yourself, start planning your small business appraisal at least a year before you want to sell the company. This way, you'll be able to make smart decisions in planning for the sale, envisioning your future, and leaving the company you've worked so hard to build in good hands. 

When you're running a business in the tech industry, valuing an IT company can seem like a very confusing process. What factors can impact the value of your business and how can you improve the valuation multiple? In this post, we'll take a quick look at how industry giant Apple's relatively low valuation multiples and how those insights can be used to improve your privately-held IT business' valuation multiples.

How Factors can Impact the Valuing an IT Company

When you think of the quintessential successful IT company, Apple is certainly one of the first to come to mind. From Steve Jobs' brilliant ingenuity to the popularity of the iOS system, it's a great example of American entrepreneurship. But despite this position in the industry, Apple's valuation multiples are still relatively low. Why?

Even though Apple has shown solid earnings well above projections for the first quarter of 2017, its market share is strongly based on a single product, the iPhone, at nearly 70% of revenues. Though the company launched a couple new products around the holidays, neither newcomer performed nearly as well as Apple's flagship device. If a new version has problems, such as Samsung's Note 7 series or removes popular features such as the iPhone's loss of a headphone jack in the last version, it can cause serious problems with profitability and reduce the company's overall valuation multiple due to this perceived risk. Even with $100 billion in sales every quarter, the company's valuation multiple is only trading at 15.3 times earnings and 3.2 times sales, which is very low for such an otherwise successful company.

Much like large companies like Apple, small, privately-owned companies are often appraised using valuation multiples. Imagine that you had a single very popular flagship product or service that was the baseline for most of your profitability. What happens when the new version of that product doesn't capture the public's interest? What about when there's a safety recall on that product? Much like Apple, your company would have a lower valuation multiple than you might expect.

Branching out into other products or services, or taking the time to expand other offerings or new approaches to your products can help ensure that your company remains profitable and with a higher valuation multiple. Another approach is to use a business valuation to determine areas of strength or weakness in your company. This allows you to address these issues and improve your overall business valuation multiple by making a more robust tech business. There's no doubt that there are regular shifts in the tech industry that can sink or float a business. Knowing where your business stands can make all the difference in what happens to your company in these situations.

By having a good grasp of what factors impact valuing an IT company, you can set your business up for a more successful future.

Though construction can often be a boom or bust business, the current outlook for construction nationally and internationally is looking very promising. Are you ready to take advantage of this growth by growing your company? Valuing a construction company is often a task left for selling a business or merging with another company, but by using a valuation report as a tool for business improvement and growth, you can see phenomenal opportunities during this next upturn. Here's a look at some statistics around the world and how a business valuation helps you take advantage of the next boom cycle.

Industry Growth: How valuing a construction company helps you compete

Recent projections by Markets and Markets is predicting a 7% compounded rate of growth per year until 2021 in the international construction industry. That's a change from $121 billion in 2015 to an astounding $180 billion by 2021. Why this big change? Governments are shaking off the dust of the recession and investing in infrastructure again. Developing countries are building as the standard of living rises. Businesses are investing in future growth as they see rapid changes in the market.

But where is your construction company during this boom cycle? When you get a business valuation, you're doing more than just determining your company's sale price or buyout value. A business valuation report starts by looking at your company overall. Do you have a good cash flow, or do you have longer than average accounts receivables or bad debt? Is your equipment in good condition or will it need replacing soon? Are you a leader in your sector of construction for your region or is your business just one of a dozen mom and pop operations in the area? By knowing where you stand, you can figure out where you need to make changes to improve your business overall.

Where does your competition stand? A good business appraiser will take into account goodwill in your community and the value of a solid reputation. Are you the go-to commercial electrical contractor in your area or are you known for rock bottom prices that aren't paying your bills? Knowing where your business stands in the community makes a big difference in how it will perform during both boom and bust cycles.

Let's not forget the market. With the market as strong as it is, how will you best benefit from this cycle? A business appraiser will consider the value of your company based on upcoming projections, which means what your company was worth during the worst of the recession may be much lower than it is worth going into a boom cycle. Wouldn't you like to take that extra value and equity and be able to roll it into growth for your company?

As you can see, there's a lot of opportunity beginning to open up in construction, but only if you're in the right position to take advantage of it. Valuing a construction company provides you with the details you need to make wise decisions for your business and ensure that you won't be taking unnecessary risks during this boom cycle.

When you're in the restaurant business, it can seem as though your hard work doesn't always amount to much. But how much should you get for your hard work when it's time to sell your business? One option that will provide you with both a solid price and insights into how to improve that figure can be found when valuing a restaurant. Here's how it helps you get ahead.

Ready to sell? How valuing a restaurant gets you the right price

When you're trying to determine a fair selling price for your restaurant, it can be really tough. Should you base your price on a restaurant that just sold in a neighboring town? Should you try to talk to a real estate agent to figure out a price? Should you just add up the assets you have and ask for that as your asking price? Unfortunately, these options usually won't provide you with an accurate selling price for your company. Why not? Let's take a look.

Basing your selling price on a restaurant in a neighboring town assumes several thing. First, it assumes that your business is of comparable value to that business, while you may have very different assets. Secondly, restaurant value can often be affected by location, so that location may be worse or better than yours. Thirdly, if you have a better or worse reputation in the community, that will affect the overall value of your business. Lastly, you have no idea how that restaurant came up with or negotiated their selling price.

Using the selling price recommended by a real estate agent has issues as well. A real estate agent is typically paid based on a commission, which means they get a percentage of the final sale. That means they'll want to sell your business for as much money as they can manage, no matter how long it takes to make it happen. What if you want to just get out of the business and move on to your next venture or retirement? You don't want to wait on the real estate agent's pocketbook to make that happen.

Adding up the assets of your business won't give you an accurate figure either. Why? It doesn't include the value of your business' location, goodwill in the community, market share or similar aspects that often makes your business worth much more than simply the sum of its parts. A good business appraiser can look at your business from the smallest aspect of operations to the grand picture in the community at large to develop a price that fits not only your assets, reputation and hard work, but also the current market conditions and how quickly you'd like to sell.

When you get a quality business appraisal, you can get a lot more than simply valuing a restaurant, you can learn how to build on your investment to get the best possible outcome. But don't forget to use a certified business valuation specialist for the process.

When you've worked hard to position your business for expansion, it's really difficult dealing with people or organizations that don't value that hard work. When you need to get more for your business' potential, you need a partner who can ensure that you're getting everything your business is worth, both now and in the future. Valuing a growing company can be a difficult prospect, but it is well worth the effort involved when it's time to sell your business, merge with another company or partner with other concerns in your area or industry.

Valuing a Growing Company: Get the Most for Your Business' Potential

It could be caused by a new market expansion. Perhaps there's just more demand in your sector than there has been in the past. Commodity prices could be skyrocketing, making prospective buyers come out of the woodwork. Whatever the reason, your company is growing and you want to realize the full potential of that growth. Where do you go to make that happen?

Many business owners take a few specific directions when trying to value their growing business. They discount the value of that growth, settling for a low selling price or otherwise receiving less consideration for their company's growth potential. They overestimate the growth value, leaving the company to grow stagnant while opportunities pass them by. The third option is to get a company valuation from a business appraiser who has experience in that particular industry and with growing companies in general. But what does that appraiser base the company's value on? Here are a few areas they typically consider:

• Future Earnings: How much is the business projected to earn over the next few years? If it's significantly higher than in the past, that needs to be taken into consideration when determining business value.
• Market Conditions: Is the market hopping, with every business within that sector seeing strong returns? If so, how long is this trend expected to continue? Much like the housing bubble and the dot-com crash, many trends may change, though strong companies that are well managed through a down turn may expect to see a stronger market share in future upswings.
• Innovation in the Industry: Is your business seen as a leader in innovation or does it create the same basic items or services that every company across the industry seems to produce? If you have a history of innovation, it can be expected that your growing company will continue to see strong growth, fueling a higher value.
• Goodwill and Reputation: Does your business have a reputation for excellence in the industry? A good reputation can make a huge difference between average one-time sales and loyal, committed customers who come back for your services and products time and again. Though today's shorter attention spans make this process harder, it's an excellent indicator of future potential.

The work you've put into your business to prepare for expansion and take advantage of opportunities as they've arisen deserves to be recognized and rewarded, and valuing a growing company is a great way to document that growth. This also lets you to take advantage of future earnings beyond what normal business operations may provide, allowing you to benefit from the course you've laid in place for your company that will lead to its continued future success. 

A company appraisal is a company appraisal, right? Wrong. Different industries often value different aspects of a business based on what's important in that sector. Oil and gas depends on market prices. Construction depends on demand. Repair services are often driven on reputation and goodwill of the community. So what's different when you're valuing a manufacturing company? We thought you'd never ask.

What's different when valuing a manufacturing company

• Current market conditions. If you're manufacturing oil rigs and oil is selling for $50 per barrel, you're not going to sell a lot of rigs. This can impact the value of your manufacturing company, unless you have options to diversify into other markets. A good business appraiser takes note of market conditions and may be able to offer suggestions to improve your standing in a weak market.
• Reputation for innovation within the company. Is your company a leader in fresh new features or adding new interfaces that hadn't been considered before? This kind of reputation can improve your company's overall value. Is this innovation supported by just a few individuals in your company? A business valuation specialist can tell you where your business' strengths and weaknesses are, allowing you to secure areas needing improvement and grow areas that are already strong.
• Uniqueness of products manufactured. Are you the only manufacturer of your products, such as a range of after-market off-road truck equipment? Or are you one of a few dozen manufacturers producing plastic clothes hangers? Having a unique product can increase the value of your business, while manufacturing a commonly produced product can lower your overall value.
• Brand value. Is your company known as a leader in your industry? If you're well known, your brand will go a long way towards creating interest in new products. If you have a reputation for excellence, that creates a certain level of expectation that your products are worth an additional amount, driving your company's value up.
• Specialization. If your industry requires a certain level of precision in manufacturing and you have the equipment and expertise to manufacture products to that level of precision, you can often charge a premium for your products. That premium is reflected in your company's overall appraisal value.
• Level of market saturation. How much room for growth is there in your market? Are there alternative markets that haven't been leveraged yet? If your market is already completely saturated with little prospect for growth, you may see a negative impact on your business' value. If you can diversify to create new features or options to expand the market again or make it feasible for segments of that market that have been previously unexplored to buy in, your business value can increase.

As you can see, when it comes to valuing a manufacturing company, many different aspects come into play that can directly impact your business' value in a very different way than companies in other industries may be impacted. For this reason, it's important to work with a certified business valuation specialist with experience in your industry to ensure you're getting the most accurate possible appraisal report.

Today's supply chain logistics are rapidly evolving through the addition of new technology, business models and similar advances. Where does your business fall within this rapid change of industry? Valuing a trucking company can provide you with valuable insights to help keep up with the latest trends in the sector. Here's a quick look at upcoming trends from RCX Solutions and how business valuation helps you adapt to these changes.

Valuing a trucking company to keep up with new trends

• We don't know where trucking policy is headed. We have a new president in office, who at least on the campaign trail, promised to grow American businesses. In theory, this could have a very positive impact on domestic shipping as international shipping tapers off. However, whether those promises turn into reality remains to be seen. This could raise or lower your company's overall value based on demand for shipping services.
• E-logging regulations require new schedules and procedures. Every trucking company in America must be in compliance with these regulations by the end of 2017. Because of the increased accuracy of logs and the scrutiny given to the information collected in these logs, deliveries may take longer as drivers must take breaks and spent shorter stretches behind the wheel to remain in compliance with FTC regulations. This will increase the cost of deliveries and can either raise your profitability from higher delivery fees or cut into your overhead as your rates stay the same to remain more competitive.
• Freight costs are going to keep going up. Our economy is solidly in a recovery stage, which means more consumers are buying products. That means those products need to be brought to the market, requiring more deliveries and higher demand for trucking companies. This trend will definitely increase your trucking company's value as many trucking companies didn't survive the recession or are still recovering from the economies that were put into place to get through the hard times.
• Reefer transportation remains very competitive. Because it's a specialized sector, refrigerated transportation rates will continue to see high demand and higher rates than in the past, even with increasing transportation options and continued lower fuel costs. Increased interest in fresh foods and frozen goods in the summer are expected to put additional pressure on this sector of the industry, especially when combined with the new restrictions of the e-logging regulations making driver time that much higher of a premium. Having this capability will increase your business' overall value.
• Partnerships and collaboration are the way of the future. One of the biggest trend in digitization is the move to partnerships and collaborations, especially between trucking companies and shippers. You'll be able to work together so your shipper is putting parcels, pallets and packages together in the most efficient configurations for your trailers, allowing you to maximize every fuel mile your tractors run. New technology will make it easier to coordinate pickup and load times based on e-logs, GPS positioning and analytical data to minimize down time. These will probably help boost your business' overall profitability and appraised value.

Smart entrepreneurs use business appraisals to determine the direction their company needs to go to get maximum growth and minimal risk. Business valuation helps you discover a wide range of aspects of your business and industry that you may have otherwise remained unaware of. By valuing a trucking company, you can quickly determine what your business is worth and where you can make improvements to boost that value.