Business Valuation Blog | Understanding Buying / Selling a Company

Many of us know how difficult it is when you are going through a divorce, and as a business owner, the stakes are even higher. On top of the anguish and mental toll, a divorce can take on you personally, if you own a company or your soon-to-be ex-spouse owns one, and you need to consider this asset as part of the settlement, the first thing you will need to do is obtain a current valuation. This will provide a professional, unbiased assessment of value for the business so you have one less thing to try and negotiate a fair compromise on.

Your first reaction as a business owner might be reluctance toward opening your financial records to your attorney or your spouse and their attorney. That type of mindset could also bleed over to the appraiser, making it very difficult to properly complete the valuation. Consider taking the high road in this circumstance, which is always recommended when dealing with any type of messy situation that needs to eventually be resolved before the parties can move on.

It's ok to have disagreements on the value of your personal and business assets with other interested parties in any kind of situation, however, the only way to work through them to a reasonable end is through cooperation and full disclosure. Otherwise, the resolution process will take much longer without any guarantee that the outcome will be more favorable to you.

When it comes to working with outside third parties, such as an appraiser, the more information they have that is accurate and well-detailed, the more supportable and accurate the valuation will be. Also, consider the additional benefits of having a third-party valuation of your company completed. For example, you can rely on it as a basis of negotiations for future investment or financing purposes. Or down the road, you may want to sell the business or buy out a partner. It is much easier for a valuation professional to update the appraisal after having recently completed it, which will save you time and money going forward.

Having a long-term perspective when it comes to personal and business decisions usually pays off and provides additional unforeseen benefits down the line. Creating an efficient and effective plan now, even if it pertains to a divorce or other difficult situation, will allow you and the other parties involved to see the “light at the end of the tunnel”. This sense of optimism in the face of conflict will most likely result in the best possible outcome.

A business appraiser can work with you and assist in the valuation process, ultimately providing you with a detailed defendable report that you can work with to help resolve any type of dispute, including divorce. Be proactive in engaging with a certified professional so you have one less thing to worry about as you work through the settlement process.

Whether you want to buy or sell a business, you need to know how much the company is truly worth. To understand this more accurately, you will need to engage in a formal independent business valuation, preferably completed by a certified appraiser. There are various approaches for determining value when performing a business appraisal, and the valuation professional can assist in understanding the best methodologies for the business involved. Here are some of the ways an appraisal is analyzed:

Market-Based Approach

For an active company, a market approach can be one approach that measures fair market value and overall position in a competitive environment. Within this approach, there are different methods to consider, including those for public and closely-held businesses, as well as basing it on a multiple of gross revenues or discretionary earnings. Depending on the specifics of the business, one or more of these approaches is utilized and weighed in the analysis

Income-Based Approach

An income perspective can be useful to value companies of all sizes and is particularly effective for firms that operate with a capital investment intensive structure. One method within this approach is the Discounted Cash Flow method, in which an appraiser gauges future revenue five years down the road, and discounts this to determine the present value and ultimately a fair sale price. This can be beneficial for companies that experience varying levels of cash flow and earnings each year.

A second method under the income approach is called Capitalization of Earnings and uses EBITDA (earnings before interest, taxes, depreciation, and amortization) to estimate a single point-in-time value for the company using its cash flow. This method can best work for operations that experience steadier cash flows and have demonstrated consistent growth.

Asset-Based Approach

This approach focuses primarily on the tangible assets of the business while making adjustments to the company’s book values and goodwill in an effort to estimate value for firms with high levels of capitalized investment, such as real estate machinery & equipment and personal property.

There are certain methods that can work best within this approach, with an initial focus on depreciated book values while adjusting for current market value using tangible asset appraisals to complement the business valuation

In summary, the business appraiser considers and weighs these approaches that factor tangible and intangible assets, revenues, profits, markets, industries, and all other relevant components into the equation, to reflect the overall value of the company. The appraiser may ultimately determine only one approach makes sense while in other instances utilizes several into the appraisal analysis to ensure the most reasonable conclusions.

Whether your company is expanding or going through a downturn, being purchased or sold, audited or invested in, refinanced or liquidated, it is important to understand the real market value of your business for you, your partners, employees and key third parties involved with your operation.

Obtaining a business valuation from a qualified appraisal firm such as Business Valuation Specialists can provide you with firsthand knowledge of the value of your company and what to expect should you wish to buy, sell, refinance or bring in new investors. A formal appraisal analysis and report can assist you in any number of ways as you move through the next phases of your company’s development and can be shared with third parties who may be assisting you with these project plans.

We will work closely with you to determine the critical information needed to complete the valuation analysis and answer any questions you may regarding the process. The experienced, certified appraisers at Business Valuation Specialists are ready to discuss the next steps with you. We look forward to the opportunity to work with you and your business as a key component to your ongoing business projects.