Business Valuation Blog | Understanding Buying / Selling a Company

Goods and Services Marketers: Why Many Target Millennials Today

Posted by Business Valuation Specialists LLC on Mar 14, 2022 7:00:00 AM

Business Valuation Appraisals Appraiser Millennials Future Business

Believe it or not, Millennials are now in their late 20s and 30s and have become the most sought-after consumers of products and services for most commercial providers across all industries. Gen X and late-stage Boomers are still in the picture, however, over the last couple of years, it has become evident Millennials are making tremendous strides in gaining buying power due to a variety of circumstances.

In the valuation world, I have recently seen a growing number of young entrepreneurs and next-generation family members running companies with fresh perspectives that can’t be ignored, and will likely set the pace for the next 20-30 years of business development across the world. Many of these individuals have patiently bided their time during unprecedented events that have forever reshaped our future over the past few years.

Others have mocked them in the past for their habits and preferences, while underestimating their potential, and not realizing the vast majority of this generation are nothing like the stereotypical picture painted by so many who are engrained in “old school” mentality.

While it is generally true that Millennials had a tougher time breaking into the mainstream workplace a decade ago in a much different business landscape, they used conservative tactics in an effort to save money, such as living at home and holding off on marriage and family plans until more financially secure. This is somewhat of a unique circumstance created by this generation, however, we are now seeing the emergence of a hungry, wizened group that accounts for over 20% of the populace, well over $2 trillion in spending power, and 90+% employed.

Virtually every major entertainment event, both live and virtual, sees its advertising revenue campaigns geared toward these consumers, while the majority of the workplace is inhabited by those that fall into the Millennial generation. These trends, which have quickly grown over the last 5 years, are the building blocks for the future leadership of our nation’s business, economic, and political climate. It is not a surprise then, that this generation is becoming the focus of many service industries and product developers who realize that staying ahead of the competition will equate to favorable ratings from this group of individuals.

Millennials are the original masters of social media, and with venues such as Twitter, Facebook, LinkedIn, and Instagram becoming dominant platforms for advertising, it makes total sense that the two are becoming entwined with how future businesses will be run.

In summary, if you own a small business, and are looking for growth opportunities that have otherwise been difficult to develop, consider targeting the Millennial generation as a potential expansion to your client base, and look to keep up with this new and exciting group as they continue to take over the future.

Tags: business appraisal services, business valuation services, marketing, millennials, future, business owners

Using Public Company Data to Determine Private Business Value

Posted by Business Valuation Specialists LLC on Dec 6, 2021 7:00:00 AM

Business Valuation Public Company Value Private Company

When you are trying to determine the overall value of your business, a certified appraisal is a great place to start. If you are a business owner, and your company’s stock is not traded publicly, it is considered a privately held concern. There are a few distinct variances between private and public company valuation methodologies. Understanding the potential approaches the appraiser will take to value your private company while using data from public businesses, is important as you work with them to develop a realistic and supportable value.

When private businesses are appraised, there are a number of approaches that are considered. For the majority of ongoing enterprises, the income and market approaches are measured and weighed to ultimately determine the most accurate value for your company. When the market approach is utilized, the business may be compared to a similar public company, while making adjustments that look to match the public company as closely as possible. The income approach will review historic and current revenues and expenses, in an effort to reasonably discount cash flows over a future earnings period.

There are other, deeper approaches the appraiser will consider as well, within the market and income methodologies.

Under the market approach, there is both a “Guideline Public Company Method” and a “Guideline Company Transactions Method” used for private businesses.

The first option reviews financial data that is freely available from similar publicly traded businesses. It considers the actual price investors would pay for a minority interest in the public company as the basis for the valuation. The public businesses targeted for comparison are typically in the same industry and market as the private company, with a similar business model.

The second “transactions” method may be considered if a public company has recently been sold which closely fits the structure of the private company, within the same business sector. Financial data may not be available, however, details of the sales transaction can be reviewed and weighed in the appraisal effort. Under the income approach, the “Multiple of Discretionary Earnings Method” and “Gross Revenue Multiple Method” are the two most commonly used for private companies.

Within the first of these, if your business is simply too small to compare to a public entity under the market guideline methods, this alternate approach might be more applicable. It looks solely at financial statements and adjusted earnings by deducting discretionary expenses from the bottom line of the typical public company model to create a reasonable multiple of adjusted earnings, which is then applied to your private business’s adjusted earnings.

Under the second income method, the gross revenue of a typical public company in your market is considered to estimate a multiple, which is then applied to your private company's revenue, to determine value. This method doesn't consider profitability, which may be a factor that will affect the appraisal.

Engaging with a certified business appraiser will start the process of valuing your private company and all of the potential methodologies considered in the process. The results will assist you in the potential sale of your company, or offer support when considering refinancing, new investment, updating company practices, and adapting to new markets.

Tags: Business Appraiser, business valuation approaches, business appraisal services, private company valuation, public company

Valuing Businesses in the Months and Years Ahead

Posted by Business Valuation Specialists LLC on Oct 25, 2021 7:00:00 AM

Business Valuation Future Value

As we move closer to the “new normal” for business operations in the aftermath of COVID-19, there will be challenges that face both owners and their service providers as to how they adjust their thinking both short and long term. Some of these questions involve the following:

  • Should our employees continue to work remotely or come back into the office?
  • Will the effects on revenue, good or bad, continue, or was this a short-term blip that will disappear in the next year or so?
  • If I want to sell or buy a business in this changing marketplace, what should I consider differently than before?
  • How can I take advantage of new opportunities created out of the changing business model?

Regardless of what opportunities or challenges you face today, it makes sense to consider an updated business appraisal as part of the next steps in your ongoing process. It may be that as a potential buyer of a business affected by the pandemic, you see an opportunity to purchase at a distressed value with the plan to reorganize and create efficiencies that will turn the company around in the near future.

On the flip side, if you are compelled to sell your company in the next year, you may need to consider discounting the value of the business and provide seller-assisted financing as part of the negotiation to incentivize a potential purchaser.

Much of the decision-making needs to be weighed against how short or long term your timeline is with taking these next steps. If you have the time to wait out the aftereffects in the hope of normalization, that might make more sense than determining an immediate course of action with many industries still impacted by the pandemic. Not every business owner has this luxury, however, and the need to make sound decisions with several unknowns still out there may require the assistance and guidance of objective third parties that can provide additional perspective on the state of your company.

From a valuation perspective, your research should lead you to engage with a certified business appraiser, with the expertise and experience to determine your company’s current value. These appraisers may have differing opinions as to the factors that will affect value the most, based on their understanding of your financial data and the marketplace itself, so ensure you have preliminary discussions with them before you decide the best fit.

Speak with your accountant as well, who may be able to provide insights into the best approach to working with an appraiser. In summary, the challenges ahead may be many, so try to gather the support you need to make the most informed decisions possible as you navigate the “new normal”.

Tags: Business Appraiser, business valuations, business appraisal services, future value

What is the Importance of the NACVA to You & Your Business Appraiser?

Posted by Business Valuation Specialists LLC on Oct 11, 2021 7:00:00 AM

Business Valuation Certified Valuation Analyst CVA

When you're considering having your business appraised, your research will likely lead you to the NACVA (National Association of Certified Valuators and Analysts), which provides a wide range of services, including certifications, for business appraisers. This designation can make a big difference when it's time to have a company appraisal performed. Here's a summary of what the NACVA is and how appraisers become certified.

Prior to the formation of NACVA, the methodologies used by these appraisers, accountants, and other business professionals followed a wide range of approaches and analyses. There was no consistency in these procedures which ultimately led to scrutiny and doubt as to the reasonableness, reliability, and independence of the conclusions. When audits were performed on a number of the businesses involved, it was determined that formal guidelines and procedures were needed to govern the valuation industry.

In 1990, the NACVA was founded to implement and support the business marketplace. It developed and tested methodologies for estimating business value under a wide range of circumstances. Over time, these methodologies were accepted in accounting, legal, insurance, financial, and tax circles, and were determined to provide the most accurate picture of business valuation. The NACVA has certified thousands of financial and accounting professionals, including CPAs and valuation specialists. The majority of that membership is certified in one of the Association's three main programs: Certified Valuation Analyst or CVA, Accredited in Business Appraisal Review or ABAR, or Master Analyst in Financial Forensics or MAFF.

The independence and consistency of the methodologies required to be considered and implemented in every appraisal under these guidelines have been critical to establishing a strong reputation of integrity. The business appraisal will also include insights into your company's performance and operations, strengths and weaknesses as well as the position within specific markets and industries you focus on.

Becoming a Certified Valuation Analyst within the NACVA involves a combination of education, experience, and formal testing, that takes years to earn. This designation gives the appraiser direct access to the resources of the association and requires them to follow the methodologies and approaches approved within. Continuing education is also a requirement to stay current with changes and updates to the program.

By being aware of what the NACVA is and how its certified appraisers can bring added value to your business, you can use that knowledge and the quality of their reports as leverage at the negotiating table. Working with a certified appraiser ensures that your business valuation has been determined using standardized methodologies that will stand up well to strong scrutiny in a wide range of areas, including legal, insurance, financial, and tax circles.

Tags: Business Appraiser, business valuations, business appraisal services, NACVA, CVA, business valuation certification

What is the Best Approach to Appraising Your Business?

Posted by Business Valuation Specialists LLC on Jun 7, 2021 8:00:00 AM

Business Valuation Best Appraisal Approach

There are different ways to perform business appraisals. Whether you're hoping to buy an established company and get into business for yourself or sell your company for a fair price, it's important to know the different approaches to valuing your business and which one is the most appropriate for your situation.

Pros and Cons of Market-Based Business Valuations

A market-based business appraisal makes sense for many industries. Consider the owner of a semiconductor manufacturer located in California who wants to sell the company and retire. If there are other businesses nearby, operating in the same or similar marketplace, a business appraiser can compare the subject business being sold with others like it, getting an idea of the market share and competitive advantage of the business.

A “Gross Revenue Multiple Method” may work in these cases. Under this method, the appraiser takes the transaction price and divides it by the revenue. They then find similar companies and determine a gross revenue multiple. This multiple is applied to the target company's revenue to roughly estimate a business value. This method is simple and quick, however, far less detailed than other appraisal methods, and often best for preliminary measurement purposes only.

Pros and Cons of Asset-Based Business Valuations

An asset approach estimates how much it would cost to build a similar business from scratch. In this type of valuation, the professional appraiser will estimate the total assets and liabilities of the business. Subtracting liabilities from assets, the appraiser will come up with a valuation.

This method works well for companies that have significant physical assets. However, companies that have intangible assets find that an asset-based method may not accurately reflect their worth. Consider the example of an innovative engineering firm. The imaginative engineers who come up with elegant solutions to problems are not captured as “added-value” in an asset-based approach. If the engineering company was sold to a new buyer, but the existing staff quit, much of the company's true value would be irretrievably lost.

Pros and Cons of Income-Based Business Valuations (The “Discounted Cash Flow” Method)

If your company has a stable earnings flow, then the “EBITDA”, (earnings before interest, taxes, depreciation, and amortization) can portray an accurate business valuation. Since this provides a snapshot of the business valuation at one point in time, it might not be the best method if earnings are projected to spike or if the company is experiencing a slow quarter.

If the business is going through an inconsistent period, the discounted cash flow method may work well. Here, the appraiser estimates the future benefits of the company, then converts them to present value to come up with a fair market value.

Ultimately, a certified, experienced appraiser can determine which method makes sense for any given company at a given point in time, and reasonably estimate the company’s value, while explaining the process to key investors and owners. Given all that is at stake when considering selling your business, it's critical to hire a certified business appraiser who understands your industry.

Tags: Business Appraiser, business valuation approaches, business appraisal services

How Valuing a Retail Business Helps You Navigate Shrinking Markets

Posted by Business Valuation Specialists LLC on May 10, 2021 11:00:00 AM

Business Valuation Retail Industry Shrinking Markets

When your business is within the retail sector, consumer confidence and market uncertainty can make all the difference in whether you are operating in the red or the black. But how do you adapt to changes in the market? One option to consider is a business valuation today so you can plan for the future, focus on your strengths and avoid the potential pitfalls of this industry. You can then adapt to changing market conditions and position your business to take advantage of the high points in the market while riding out the low ones.

Many people only consider obtaining a third-party business valuation when they are looking to buy or sell. The benefits gained during a retail store valuation now, regardless of your future plans, can provide you with valuable insights into your operation, and a better understanding of your overall 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.

As an example, regardless of the timing, it is likely that your business has recently squeaked through an economic downturn as well as seasonal upswings in sales. Based on your experience, you would now like to consider growing your business by adding a new location or merging with a competitor that hasn't fared as well. In preparing to manage the due diligence process, you need to know what your business is worth, whether it's to secure the financing and investment you need, or to know where you stand in comparison to competitors. By learning this information, you can better negotiate the terms involved in the potential transaction.

The certified independent appraisal report you receive should have all information you need including a report on your market sector as a whole and its anticipated growth or loss in the upcoming years. A look at your competitors should also be included, detailing how they compare to you in the market. Your assets and liabilities are reviewed, giving you valuable insights into the areas you may need to upgrade or replace that are inefficient or even failing.

As a result, you may see innovative approaches to customer support that strengthens your business' overall stance in the market sector. The appraisal may even help you look at your online presence and level of digitization, as well as how that capability is expected to allow your business to expand into new markets.

In summary, you'll have the supporting documentation you need to get that loan for a new location opening or to improve and expand your existing business processes. You can make smart, informed decisions on what needs to change in your company to boost its performance and see where you should continue to invest for future growth. Obtaining a retail business appraisal from a certified experienced valuation firm is one of the best ways to gain these insights into your company which, in turn, will provide options that allow you to adapt to meet changing market demands.

Tags: business valuations, business appraisal services, retail business, valuing a retailer, retail industry, shrinking market

The Benefits of Using Nationwide Business Valuation Companies

Posted by Business Valuation Specialists LLC on Apr 12, 2021 8:00:00 AM

National Business Valuation Service

 

Savvy business owners and executives know that obtaining independent updated valuations of their company is a vital part of maintaining a sound, overall financial picture. When your organization has branches all over the country, how do you ensure you're getting the same quality of service and reliability at all these locations if you are using a local appraisal firm? One solution is to consider using a national business valuation service, which provides your company with professional appraisers who have valued businesses in every state and understand the broader marketplace your businesses operate in.

How are these types of valuation firms different than local single location valuation companies? Let's find out:

What are National Business Valuation Services?

If your company has multiple locations, and an updated independent business appraisal is needed, it makes sense to have consistency in the quality of the work as well as the methodologies used to measure value. This ensures the firm providing the valuation is familiar with your industry across all regions of the country and can provide the same level of service while following consistent guidelines and procedures for all of your operations.

A national business valuation firm will assign one project manager to handle the entire workload, so you only have to communicate with a single person throughout the process. Their job is to handle the day-to-day details of obtaining the documentation needed from your business as well as managing any other appraisers involved in the valuation effort. This beats the alternative of potentially having to work with multiple companies or individuals while taking a chance that a local appraiser might not be qualified to manage a much larger project.

The end result is a reliable, supportable valuation completed by certified, experienced appraisers with a consistent methodology that provides your company with the information needed to understand your current and future needs as you evolve into the next stages of your business plan.

Business Valuation Specialists LLC is a national business valuation firm that has been providing appraisal services across the country since 2003. Our highly-trained, qualified appraisers are Certified Valuation Analysts (CVAs) through the National Association of Certified Valuators and Analysts. We are available anytime to help answer questions you may have about getting a quality business appraisal performed on your company.

Tags: business appraisal services, business valuation services, nationwide, benefits, advanages

Transitioning the Family Business? Obtain a Certified Appraisal

Posted by Business Valuation Specialists LLC on Feb 15, 2021 8:00:00 AM

Certified Business Appraisal Transferring Leadership

 

Transferring ownership of the family business requires care and planning to ensure a smooth change of leadership. One frequently overlooked tool that can assist in the transitioning of the business to family members is a company valuation. Learn how getting the family business appraised can benefit all the relatives and related parties who work for the company.

Why You Should Obtain the Valuation Before Transferring Leadership

Imagine if you transferred the family business over based on a “ballpark” value thrown out by one or more of the current members involved. Older relatives who held leadership positions might be expecting a large payout. Others may have assumed the payout was certain and planned their retirement lifestyle on it. When the valuation of the company is not formally established by a certified independent appraiser when leadership transfers, the grounds might be set for a generational dispute if there is no real agreement or understanding of the true value.

If you engage the services of a business appraiser, the resulting analysis and report would act as an objective neutral framework for the company that would guide all the family members involved. While the appraised value might fall short or potentially be higher than the perceived value, the process of getting the business appraised will take some of the emotions out of the leadership transfer.

Once everyone understands the true worth of the company, you can allocate the fair market value by the number of shareholders, and provide the owners with an idea of their retirement income, and plan for the next steps with the transfer of the business.

The appraisal can also help manage expectations and allow the new leaders to chart a course forward with confidence that they have all the facts needed to succeed. Instead of causing strife, the change of leadership can now strengthen family unity.

Getting Family Business Appraisals for Tax Purposes

Not only is it important to have the company appraised from a personal perspective, but it is also necessary to do so for tax purposes. The IRS requires that businesses not subject to a special provision be valued at "fair market value" for federal tax purposes when the business is transferring family leadership. Fair market value denotes the price that a buyer, not related to the willing seller, would reasonably pay for the business. Since most company owners cannot objectively determine fair market value, a business appraisal will solve this requirement.

If the IRS were to ever examine the business transfer or audit company taxes, the appraisal can prove that the company's value was treated as "fair market" for the purposes of transfer.

If you sell the business to your relatives for less than fair market value, the new owners could be penalized with gift or estate taxes. Selling for fair market value is the best way to avoid this and ensure a smooth transfer of ownership.

Planning Your Business Appraisal

Now that you are aware of how a business appraisal can assist with the transfer of your family’s company, take action by finding a qualified appraiser. It is well worth the time spent to find an appraisal professional who understands your industry and your geographic locations, given that these two variables can directly affect the company's appraised value. A certified business appraiser will also have the experience and credentials needed to support their value conclusions.

Business Valuation Specialists can assist you in this process from beginning to end. We have the qualifications you are looking for and the experience you need to provide an accurate appraisal that will help you through the transition process.

Tags: business appraisal services, business valuation services, family owned business, transfer of ownership

What Factors into a Business Appraisal of a Software Company?

Posted by Business Valuation Specialists LLC on Nov 23, 2020 8:00:00 AM

Business Valuation Software Company

 

When you want to sell your software company or need a better understanding of the value for business you have worked so hard to build, you need to consider an appraisal. The software industry differs from most others, so how does this factor into a business valuation? Understanding the methodologies involved with the appraisal of your software business can help you make sense of the current market and your place within it.

There are two main approaches to value within the business appraisal world: the income approach and the market approach. Both can be used to value a software company, and a business appraiser will select the best method depending on the reasons for appraisal and the data available for analysis.

For the income approach, an appraiser focuses on the current and future benefits of your business in terms of revenue and expenses. They will utilize this information and discount it in present terms. This is referred to as a discounted cash flow (DCF) of your business.

This approach is appropriate for companies that bring in an unstable amount of earnings from one year to the next, or companies that are not growing at a consistent rate. Since many software companies do not grow at a steady pace, and commonly see material fluctuations for revenue and expenses, an income approach makes sense.

A market approach can also be used for taking the valuation of a company in the software industry. This is more specifically referred to as the multiples of revenues and earnings market approach. In this method, an appraiser looks at the software company's historic financial statements to determine values. The appraiser then compares the software company's values to its peers.

Factors That Affect the Value of a Software Company

Factors that may affect the value of the software company include among others, tangible assets owned, the replacement cost of the software itself, the value of similar businesses (possibly competitors), customer acquisition cost, and measurable advantages to your products

Since there are many factors that affect the value of your software company, you should know what method an appraiser will use, the factors they consider, and how they put this data together to arrive at your company's overall value. Talk with the appraiser during the valuation engagement to better understand what the appraised value really means.

Tags: business valuations, business appraisal services, valuing a software company

Valuing a Service Company? Many Types, Many Values

Posted by Business Valuation Specialists LLC on Mar 8, 2017 1:17:00 PM

valuing a service company.jpg

When your business is focused on providing services your customers need, it can be very difficult to determine what your service company is worth. Part of the confusion surrounding this issue is the value of goodwill and reputation in the market place. When a company's strongest asset is the level of professionalism and technical expertise that is provided, the valuation of a company is strongly rooted in the customer experience and satisfaction in a job well done. But how do you place a dollar figure on a reputation? Here's some of what's involved in business valuations for service companies:

What's the Value of Your Service Company?

When a service company is valued, it has a number of differences than other businesses. Instead of manufacturing products, they provide a service, bringing technical excellence where it's needed most. When a company does that well, they begin to build a reputation for good work and demand for their services grows as customers pass on the company's information to other people. Eventually, the company's name becomes synonymous with good service and fair practices. At that time, the business has begun to grow what is known in valuation circles as goodwill.

As an example, let's look at the business Roto Rooter. Even without knowing much about the business' specific strengths and weaknesses, you probably know that Roto Rooter is a plumbing company and that they can take care of a number of different plumbing issues in your home or business. Because that company has grown and spread so strongly, it had grown its reputation and goodwill to the point that the name provides as much confidence in the quality of the work as the individual plumber who is actually performing it. When that name is used, it's expected that a quality service repair will follow.

But how is that turned into a dollar figure when the valuation of a company is being determined? When goodwill is involved, the company becomes more than simply the sum of its parts or the projection of its income. But it's not just the reputation. It also includes the company's reputation, its branding and brand recognition, the managerial expertise in the business, its past innovations, the trade secrets it has developed, its training processes and the clients and suppliers that are loyal to that company and everything it has developed.

To determine the final value of a business, a qualified appraiser must add the value of the company's assets and equity and then determine how much of the business' value exceeds that figure. The amount that is in excess of the asset and equity is typically considered to be the company's goodwill.

Business appraisals of a service company must take into account the reputation and goodwill of the community and its impact on the business' ability to grow. If you're considering changing direction, selling or passing your business to the next generation, do you know what impact that may have on your business' profitability? By working with a certified business valuation specialist, you can ensure that whatever change you're making can be accomplished with minimal turmoil in the community.

Tags: business appraisal services, service company valuation, valuing a service company