Business Valuation Blog | Understanding Buying / Selling a Company

Selling a Business to a Third Party? Obtain a Business Valuation First

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

Business Valuation Essential Before Business Sale


When you're selling a business to a third party, the topic of appraisals may arise. But why is it important when you're selling your company, and what difference will it make at the end of the day? A formal valuation of your company is one of the key components that drive the transaction. Here's why:

Why Business Valuation is Important When Selling a Business to a Third Party

When you're planning to sell a business to someone you don't know, you want to make sure everything is done fairly and equitably. Completing an independent, certified, third party appraisal early on is the first step to ensuring this happens. By having an appraisal performed, you can see where your business needs improvement, and learn where it is already strong so that you don't have to put further effort into areas that are already in great shape. Once you've made changes and improvements in those areas that required them, your business should increase in value, allowing you to realize the benefit from your actions and detail these updates to potential buyers.

If you're like many business owners, you know that your company should be worth more than the assets on the balance sheet, but may not know exactly how much more. By having a certified business appraisal in hand, you have a better idea of what that figure should be, and can consider offers that are reasonable while dismissing those which are not. You can also decide if you want to ask a price that is in line with similar businesses in your market or if you feel you have a unique position that should be accounted for, ask something higher for that consideration.

Having a formal business valuation helps you at the negotiating table. Because a certified appraisal is based on accepted standardized methodologies, it represents best appraisal practices and procedures, and can also be useful in legal, insurance, and financial circles. If you want the potential buyer to come up in price, providing them with a copy of the appraisal report may make them aware of facts and circumstances about your business they may have previously been unaware of. This gives them a legitimate supportable reason to either change their initial offer or meet a counteroffer you've proposed to them during negotiations.

Business appraisals are vital to your success when selling a business to a third party. If you're getting ready to sell your business and haven't contacted a business valuation firm, please feel free to contact us today. Our qualified business appraisal specialists are ready to help you get the maximum benefit from your business sale.

Tags: business valuations, business appraisal, Business Sale Valuation

How a business valuation helps secure an SBA or USDA loan guarantee

Posted by Business Valuation Specialists LLC on Mar 1, 2021 8:21:25 AM

Business Loan Approval Certified Appraisal


If there's anything certain in business, it's that dealing with the government is probably going to take longer and be more complicated than you'd like. There are, however, several agencies that help small businesses, including the Small Business Administration (SBA) and the United States Department of Agriculture (USDA). These agencies offer popular loan programs with great rates and flexibility while working with your local banks to get you the financing you need to grow your business. Local banks oftentimes receive guarantees from the SBA and USDA that loans will be paid back to the lender if the business fails. For most of the loan programs, these federal agencies require a business valuation be performed as part of the approval process.

How can a business valuation help secure an SBA loan?

  • A business valuation performed by a certified business appraiser ensures that the valuation has been performed independently with no bias while using accepted methodologies. This means that you will receive an accurate picture of your company's value and the SBA understands the loan they are guaranteeing is being measured against your company’s current worth.
  • Business owners sometimes make the mistake of basing their company's value on tax accounting records. Though these documents are accurate and useful, they don't specifically reflect the appraised value of the business. A review and analysis of your tax returns and financial statements over a 3-5 year period will be better suited to properly value your business.
  • Having an appraisal performed also helps you understand what condition your company is in. There won't be any surprises when you go to pay back the loan and realize there's an issue with your cash flow, industry position, expected income or similar concerns. You'll know where your company is strong and where it needs improvement. A business appraisal gives you a solid look at how your company is performing and where you need to invest more time and effort.
  • SBA guidelines allow lenders to perform their own company valuation if a loan is for less than $250,000 but requires an independent certified appraisal if the loan is higher. You may want to complete a business valuation regardless if you believe the bank doesn't have a solid grasp of your business or industry and is limiting the loan terms, or you just decide it prudent for other business considerations.

By having a business appraisal performed on your company, you're doing more than just ticking off a box on a checklist, you're finding out valuable information about the health of your company's financial situation. Business Valuation Specialists is ready to help you.

Tags: business valuations, business appraisal, SBA Loan Business Appraisal, USDA Loan Business Appraisal

How Valuing a Small Business Provides Great Insight

Posted by Business Valuation Specialists LLC on Jan 18, 2021 8:00:00 AM

Valuing Business Insight Certified Appraisal

Photo by Direct Media on StockSnap

It's no secret that small businesses are more flexible than larger companies, able to change production, focus, and market more quickly than their larger counterparts. With this change, though, as a small business owner, how do you ensure you're not exposing your enterprise to excessive risk that could cost you valuable revenue and profits?

Valuing a small business enables you to see into the nuts and bolts of where your company is strong and where it needs improvement, allowing you to manage risk more effectively to take advantage of opportunities as they become available.

Maximizing Flexibility

There's no doubt that the ability to nimbly change direction is one of the greatest advantages of small businesses over larger companies. However, changing direction requires that you know the condition of your business before commencing change. Will an evolution take advantage of market conditions or will a different business environment create growth for your company? Or conversely risk slowing it to a stop, even possibly putting it and everything you've worked for at risk?

To take maximum advantage of changes in your market, you need to know exactly where your business stands to determine where and when to make changes. One of the easiest ways to achieve this goal is by engaging a certified business appraiser to provide an updated valuation of your company.

Knowing Strengths and Weaknesses

How does the valuation of a company help you make it more flexible? All businesses, markets, and owners have different strengths and weaknesses. Knowing where your company lies through a small business valuation provides you with the information on whether an opportunity is a good one that plays to your strengths, or otherwise leaves you open to significant risk with the potential loss of market share. Business valuations are one of the best ways to determine where these strengths and weaknesses lay, whether it's in undervalued equipment, overvalued assets, or poor cash flow issues.

Reducing Risk

Valuing a small business allows you to know whether taking a particular approach to the market is a good idea or not. Business appraisals may help you determine whether your regional location has changed in market share, or what your expected business income may end up being when you've had inconsistent revenues and expenses in the past. You may be able to determine the change in your business is based on a recent boom in the market and if that boom is a short or long-term trend.

If you're considering a merger or partial sell-off to expand or reduce your business, will the new company reflect your strengths or pull it down by exposing weaknesses? By knowing where your company stands within the structure of a business valuation, you can make decisions that will leave you stronger instead of opening you up to needless risks.

By having your business valued by a certified appraiser, you can increase the chances of making good business decisions that will keep your company in the black and growing. Taking the time to have an appraisal performed gives you another tool and the added insight to help ensure you will be successful. If you need assistance finding a qualified business appraiser, please contact us today. At Business Valuation Specialists, our highly-qualified valuation specialists are waiting to help you succeed.

Tags: Business Valuation, business appraisal, valuing a small business, certified appraisal, business valuation appraiser

4 Things to Think About Before You Buy a Business

Posted by Business Valuation Specialists LLC on Dec 21, 2020 8:00:00 AM

Business Purchase Agreement


You are 55 and your employer of 15 years tells you that the company is going in another direction and your services are no longer needed. Suddenly, that six-figure salary you were receiving is gone. What are you going to do? Finding another well-paying job will not be easy and the thought of an extended job search is unappealing. Maybe you should create your own job and buy a business?

You are 30, in your prime, and ready to conquer the world. At work, you still feel like a small fish in a big sea. One day you realize that this is not the life you want so you give your notice in anticipation of something better. Buying a business will make you the big fish and gives you the opportunity to control your own destiny.

No matter what reason you may have for wanting to buy a business, you should take your time before making this decision and ultimately offering up a lot of money to purchase an existing business. First, ask yourself these questions:

  • Are you sure you want to own your own business?
  • How much time are you willing and able to devote to running it?
  • Is the risk worth taking if it means giving up a high-paying job?
  • How will it affect your family?

It is easy to get caught-up in the emotion and excitement of the moment and make hasty decisions. To be sure you are not paying too high of a price, and are getting into the right market, you should understand the real value of the company you are interested in purchasing.

A business appraisal provides you with a supportable estimate of the company's fair market value. It serves as a reference point for making an initial offer and makes it easier to negotiate a final sale price.

How are Business Appraisals Completed?

  1. A business valuation starts with a conversation or communication with a business appraisal company. It provides an opportunity for you to give some basic information about your intended company to the appraiser who, in turn, will talk to you about the valuation process. You should feel comfortable that the company you are talking to has the expertise and experience to qualify as a certified business appraiser.
  2. The next step is to get a quote for your company's valuation. The amount you are quoted is based on the things you discussed during your initial consultation. Among the things that can affect the amount of the quote are the size of your company, the detail of the appraisal, and the length of time it will take to complete the appraisal project.
  3. Once you get the quote, you are under no obligation to have the appraisal done. You are not penalized for changing your mind. If you accept the quote and want to proceed, you will need to sign an engagement agreement which then commits you to the valuation effort to be put forth by the appraiser. In many cases, the current business owner will be willing to cover a share of the costs to complete the work.
  4. You will then be asked to complete a business questionnaire and submit prior tax returns and/or financial statements. Most owners who are anxious to sell their business will provide the necessary documentation about their company so a company valuation can be done. If you express serious interest in buying a company, and the owner will not provide tax returns and other financial documentation, be suspicious. It may be an indication that the owner is asking more for the company is really worth.
  5. Assuming that you are given access to the financial records of the company you are looking to acquire; the data and information is analyzed by the appraiser and a valuation report is generated. After receiving the report, you can discuss the results with your business appraiser.
  6. You are now ready to make effective decisions and negotiate a reasonable sale of the company you may be running in the very near future.

Tags: business appraisal, valuation of a business, business purchase

Is a Discounted Cash Flow Business Valuation Right for Your Company?

Posted by Business Valuation Specialists LLC on Dec 7, 2020 8:00:00 AM

Discounted Cash Flow Analysis


When you're considering having a business appraisal completed, there are different options available. One option to consider is the discounted cash flow analysis, which is based on a company's income and growth by calculating the net present value that future cash flows will bring into a business.

How does a Discounted Cash Flow Analysis work in the Context of my Company’s Appraisal?

A discounted cash flow analysis looks at the expected future income, or cash flow, of a company over a reasonable time period. If your company is expected to have a particular percentage of growth based on a certain percentage of the business’ weighted average cost of capital (WACC) for a set period of time, the expected cash flow over that time period can be calculated. In essence, the estimated value of a company will rely on those forecast numbers to drive the appraisal. WACC is a recognized variable in every business based on the company’s debt and equity structure.

How Discounted Cash Flow Differs from Other Types of Valuation Methods

There are three approaches commonly used in business appraisals, (1) which involves strictly reviewing current assets; (2) a market driven approach; and (3) basing the appraisal on income. A discounted cash flow approach is based on an income assessment, however, taking it a step further, by not only including current income but projections about future income and the effect growth has on that figure. It often produces one of the higher value estimates for business valuations as it looks at what the company will do in the future, typically seen as a best-case scenario.

The Valuation Process Explained

The steps involved in this type of business appraisal include (1) Deciding how far out to forecast your valuation, (2) estimating the rate of revenue growth by calculating profits after taxes, working capital needs and estimated expenses, (3) calculating free cash flow based on previous figures, which can then be compared against current income statements and future operating costs based on the company's prior performance, and (4) calculating the discount rate.

Though it is acceptable to appraise your business off of past performance, doing so may not take into account potential changes to your company and future external economic effects. Some factors that help to better understand these are thinking about what the company's sector and its future development are as a whole, how well your own assets will hold up, and whether supply and demand pricing will remain the same.

There are different approaches to completing this analysis, and it is best left in the hands of an experienced appraiser to determine which one will best reflect future business performance.

In summary, a discounted cash flow valuation can seem overwhelming however, the results can provide benefits for your business in terms of projecting and recording market value today and in the years ahead. Working your way through this process will assist in discovering where your business’ future is headed.

Tags: business appraisal, discounted cash flow

Valuing your Business in the Midst of Uncertain Economic Times

Posted by Business Valuation Specialists LLC on Aug 31, 2020 8:00:00 AM

Business Valuation makes planning and choices easier

With all the craziness that 2020 has brought along with it, from COVID-19 to civil unrest, to wildfires and storms causing broad power outages, one way of counteracting the uncertainty of your company’s future is to have an updated business valuation completed which not only focuses on historic performance but projected outcomes as well.

Working with you and your company’s key personnel, the certified appraisers at Business Valuation Specialists will walk you through the process and provide insight as to the key information needed to analyze the value of your company with past, present and future scenarios considered.

You may want to consider selling in the current market, capitalize on buying a business which needs further examination, or reaching out to new investors and financial institutions who can provide the necessary capital to get you through these tumultuous times. Regardless of the reasons why, it is always a smart decision to obtain an independent valuation which will hold up to the scrutiny of the parties involved in the transaction.

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 your business as you continue to wade through these difficult times.

Tags: business appraisal, Business Valuation Specialists, Economic Environment

5 Reasons Why Your Company Needs a Business Valuation Expert

Posted by Business Valuation Specialists LLC on Jan 11, 2017 9:40:00 AM

business valuation experts.jpg

When it comes to the valuation of a company, it can be easy to consider the need for a business valuation expert and the business appraisals they provide to be a one-time thing. But if you do use this approach, you may be missing on some of the best benefits business valuations can offer your business. Could it be that you need to have a business appraisal performed more often or need to learn how to take the best advantage of your opportunities? Here are a few reasons why business valuation experts can help your company soar.

5 reasons why your company needs a business valuation expert

  1. Changes in your business' leadership. When you have a change in ownership or leadership in your business, a business appraiser can help you navigate who gets what. When a partner leaves or a divorce happens, a professional business appraisal helps you determine how much that person's share of the business amounts to and how that cost can be handled without breaking the bank. If the individual leaving the business is doing so under a less than friendly situation, the business valuation will hold up to strong scrutiny if a lawsuit becomes necessary to settle the matter.
  2. Shifts in the market. Is the market going through a boom or a bust cycle that is affecting your profitability? How can you stay ahead of the shifts to improve your business' overall standing? A business appraiser can help you determine what changes you can make to keep up with those changes and position your business to come out ahead by taking advantage of the situation. 
  3. Changes in the industry. Has digitization or other new discoveries or technologies caused disruptions in your industry? When these types of changes are occurring, it can be really difficult to figure out where to position your business. Deciding whether you should embrace the changes or ride out the disruption is easier when you know what's going on overall.
  4. Shifts in business focus. Are you considering entering a new sector or changing the direction of your business overall? By knowing what's going on in those areas, you can prepare your business for that shift to ensure that it will go smoothly and that you'll be able to make a successful shift.
  5. Changes in your business' profitability. Has your business become less profitable and you need to know where you're losing money? Maybe you have more money coming in than expected and are trying to figure out how to take advantage of it? A business appraiser can tell you what's going on and how to shift your focus to the change.

By keeping these reasons in mind as you go through your daily operations, you can ensure that you can help your business take advantage of any opportunities that arise without having to worry that you're putting your business at unnecessary risk. Working with your business valuation expert means you can safely grow your business while being guided by expert knowledge of your industry, competitors and business. But what if you're not currently working with a well-qualified business valuation specialist? If you need to be connected with a valuation expert who has experience in and a solid grasp of your industry, please feel free to contact us today. We'd be happy to match you up with the right business appraiser for your company.

Tags: business appraisal, business valuation expert

The Value of Business Appraisal in the New Tax Year

Posted by Business Valuation Specialists LLC on Jan 6, 2016 11:00:00 AM


If you've been wondering about the value of business appraisals, you're not alone. Many business owners consider having a company valuation performed, but back away from committing to business valuations and end up putting their business in a risky situation. As the new tax year is approaching, lets take a look at how getting the valuation of a company helps a business owner make good decisions that directly benefit their company's bottom line.

Navigating the Changes Ahead

Are you getting ready to retire, pass on the torch to the next generation or sell your business? There are a lot of changes that can happen to your business in the next year If you know what's coming up enough to plan for it, you can maximize your tax savings and make the change in leadership a much easier one for all involved. By finding out your company's value of business through a report prepared by a certified business appraiser, you can meet with your financial advisor or accountant with all the information they need, taking the guesswork out of the process and providing legal documentation as to your company's valuation. This in turn allows them to investigate which options will work best for your future plans. This allows you to move ahead with those plans confidently, because you know exactly where your business is heading.

What's it Really Worth?

If you're considering selling your business or making a merger with another company, knowing your business' actual value gives you a point of strength to negotiate from at the bargaining table.

Being a Little Opportunistic

Beyond knowing how to deal with changes in company leadership or determining your business' true value, having a business valuation performed on your company ensures that you know the exact financial picture of your business. This means you can take advantage of investment or business opportunities that come your way very quickly, without exposing your business to risky propositions or bad investments that could leave it crippled in the short term and taking a long road to recovery. A company appraisal performed by a qualified valuation specialist gives you a much better picture of your business' financial health. That means when a new opportunity comes your way, you'll know very quickly whether it's a good prospect for your business or if you should steer clear of the potential risk the prospect could bring.

The advantages you can gain from knowing the value of business concerns are many, but they only apply if you actually have a business valuation completed on your company. To ensure your company appraisal has legal standing, make sure that you have the company appraisal performed by a qualified business valuation specialist who uses standardized methodology to complete your valuation report. If you have any questions or need help setting up a company valuation for your business, please feel free to contact us and chat with one of our highly-trained and qualified business appraisal specialists.

Tags: business appraisal, value of business

Is It Worth the Cost to Get a Business Appraisal?

Posted by Business Valuation Specialists LLC on Nov 19, 2015 10:30:00 AM


Though many companies don't have regular business valuations performed, a business appraisal is a great way to take a look at exactly where your company's financial situation is and how it can be improved. Valuation of a company provides vital details to help you decide whether a change or investment you're considering makes good sense and doesn't put your business in a risky financial situation. But is it worth the cost? Absolutely! Here's why:

Why it's worth having a business appraisal performed

Getting a professional company appraisal done on your business helps you know exactly what you have and don't have. By knowing what the bottom line is, you're putting yourself in a good situation if an opportunity comes along, if you need to negotiate a contract or otherwise make a major decision for your company. Here's why business appraisals make good sense:

  • Depreciation doesn't give you actual net worth. Your tax accountant may have depreciated your delivery van over five years, but if you're still using it ten years later, that's five years where that van's value doesn't show up on your business' net worth statements.
  • You're not sure that your tax assessment is accurate. How do you fight a bad assessment without knowing what your company is actually worth?
  • Your market is booming and your bottom line doesn't reflect it. If you'd been an oil equipment dealer a decade ago in Williston, North Dakota, your business may have not been much more than the local hardware store, but when oil was discovered, your business' market value may have skyrocketed.
  • You don't have a clear picture of your business' financial situation. Because you don't know all the conditions that can affect your business' value, you can't make wise business decisions and may put your business in a risky position based on poor financial information.

The situations where it's helpful to have a business appraisal

But when is the best time to have a business valuation performed? Here are some common situations:

  • Making an investment in a company. When you're considering putting funds into a company as an investment, you want to know that the information you have on the company is accurate to ensure your investment is safe.
  • Looking at expanding your business. If you need to finance a business expansion, you're more likely to get a favorable loan rate if you can prove the true net worth of your business and the collateral that backs those figures up.
  • Considering a merger or acquisition. It doesn't matter which side you're on in this situation, knowing what your company is worth going in gives you a stronger position at the bargaining table.
  • Selling or passing your company on to the next generation. Much like looking at mergers and acquisitions, knowing what your company is worth helps you get a fair price and documents the value for the new owner.

As you can see, having a business valuation performed on your company can help you determine its financial health. But what about the company that is performing the company appraisal? You'll want to find a company with a reputation for excellence and that uses Certified Valuation Analysts (CVA) through the National Association of Certified Valuators and Analysts (NACVA) to ensure they're using the best recognized methodology for the business appraisals being performed. Contact us today with any questions or to set up a business appraisal for your company.

Tags: business appraisal, company valuation, company appraisal

How to Value a Service Business

Posted by Business Valuation Specialists LLC on Sep 24, 2015 8:30:00 AM

Comparing a service-producing business to a good-producing business is like comparing apples to oranges. Apples and oranges can both taste delicious, but they have distinctively different flavors. A service-producing business and a good-producing business both sell something of value, but generate sales in entirely different ways. Although there are some common elements in the way a business appraisal is done for both sectors of our economy, how to value a service business requires a different approach than how to value a good-producing business.

Manufacturers are in the good-producing business and they typically make large capital expenditures to purchase machinery and equipment that is needed to produce the goods they sell. Service-providing businesses employ a large majority of the workforce. Some of the subgroups in the broad service-providing category include, financial services, retailers, and health care.

Since a service business does not produce any goods and usually does not have expensive machinery or equipment, a business valuation has to look at the ways that the service business generates revenue. How to value a service business focuses on some of the following variables. 

Type of Service You Provide

The valuation of a company that provides a service can be affected by the level of demand for that service. For instance, as the population ages and Baby Boomers start to retire, the demand for health care services is increasing. If you run a company that provides home health care services that help people stay in their homes, your company valuation would benefit from the need for your service. 


If you run a seasonal business where most of your revenue is generated over a period of several months, your service business carries a higher risk than another service business that derives its revenues in a more steady pattern spread out over the entire year. A disruption in service of a seasonal business can have a bigger impact on the company's bottom line and thus lower its inherent value. Company valuation is based in part on the expected stream of future revenues. 


Having a strong brand can increase the value of a service business. A small business owner may operate a national franchise like Dunkin Donuts or Subway, and be worth more than a non-branded coffee or sandwich shop.

Client Base 

Business appraisals tend to be higher for companies that have a large and loyal client base because it indicates that there will be a steady flow of business. Whether you have long-term contracts with other businesses, or have developed a following over the years, just about every service company needs repeat business to survive and thrive.

Time in Business 

An established service company is usually considered to be more valuable than a competitor who has only been in business for a short time. It takes time to build a good reputation and get customers to switch their loyalties from an established company to a new company. A business appraisal of a service company should take into account the number of years the company has been in operation. 

Growing or Mature

All other things being equal, a service company that is growing will always have a higher valuation than a service company that is mature. A mature company may have steady business, but revenue will remain fairly constant over time. A company with good growth will build its revenues over the years and thus, is more attractive to a buyer, and also given a higher business valuation

Competitive Advantages

A service company that has a competitive advantage may be able to lower its costs of providing the service or offer its service for less than its competitors. Competitive advantages can be anything from a better physical location, better access to information, or having the most qualified and experienced staff of experts in town. 

Appraising your Service Business

How to value a service business depends on looking at the hard numbers and also considering some of the less tangible factors that add value to a business. If you want an accurate estimate of the value of your service business, you should consider hiring a certified business valuation specialist.

Tags: Business Valuation, business appraisal, How to Value a Service Business