Valuation is essential during an acquisition, regardless of which side of the deal you find yourself on. The acquisition process can be lengthy, and there are several things you will need to prepare for, including engaging a certified appraiser to complete a current valuation of the business.

Documents at the Ready

On the seller side, the overall process will go more smoothly if the company’s financial statements, taxes, and related business documents are organized and ready for review. This will give the buyer the utmost confidence that they are making the right decision moving forward with the transaction. It will also create an efficient and effective transition.

These steps greatly assist in the appraisal process as well and can ensure the valuation is being analyzed with every piece of data available.

Work with Trusted Associates

You can't go through an acquisition alone, so before you seek buyers, find the right people to help you through the process. This may include a business lawyer, a tax adviser, a financial professional, and a certified business appraiser. These partners can help you manage expectations throughout the acquisition process and take some of the detailed busy work off your plate.

While your associates are assisting you, take the time to do your own research to better understand the market and how your company fits into the larger industry picture. Seek to view the transaction from the buyer’s perspective. This may include a review of any similar deals in your markets and other companies that commonly acquire in your industry.

Don’t Put Off the Appraisal

As a business owner, you are probably a little biased in calculating your company's value. You may be emotionally attached and not looking at the situation objectively. An independent valuation of your business will help you see things subjectively, so you can better understand a realistic range of value in the current market. Review the appraisal carefully and don’t be afraid to ask questions about the valuation. When you understand why your company was appraised at a certain price and what factors affect value, you will be a stronger negotiator.

In summary, by taking these steps before an acquisition, you can put yourself and the company in the best position possible, while navigating each step of the acquisition phase with confidence, thus maximizing the chance for success in the ultimate transaction.

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.

When you need to have a business valuation performed, a reputable valuation firm can provide you with significant insights into your company that in turn, can offer a wide range of benefits to your business. But what exactly happens when you're working with a valuation firm? What can you expect from a certified business appraiser? Here's a quick look at what takes place when undergoing a business valuation

To start with, a quality business valuation company will look at much more than just the basics of your business and its financial health. They will complete a comprehensive review of the industry and what factors may affect your business's ability to perform in the marketplace. They'll take a solid look at the risks and rewards of certain growth plans and provide you with a detailed report of what your business is worth along with areas in which it is strong and in those which could be improved.

Here are the typical steps that are taken in the process:

1. The appraiser will gather basic information about your business. This will include the type of business, availability of key information, potential areas of importance to the business valuation. The purpose of the valuation is also determined, as particular types of appraisals are required for different situations.
2. The business valuation appraiser will then provide a proposal including the timeframe expected for the appraisal report and the cost expected. They will also request all internal documentation for the valuation, including financial data, asset information, and data on specific areas that may be unique to your business.
3. Next, they will take a look at what aspect of the industry your business falls into and what portion of the market share it holds, while examining key areas including finances, overhead costs, regularity of income, the actual market value of assets, and related documents. Intangible factors such as your reputation in the community, the desirability of the business location, and unique facets of the business will also be taken into account.
4. Using all of this information, the certified appraiser will develop their analysis and issue the formal report. This report utilizes standardized, accepted methodologies and is designed to stand up to scrutiny that will hold up in insurance, tax, and legal circles.
5. Once the report is issued, it will be reviewed with you to ensure it is an accurate reflection of your business and potentially make adjustments for any new details not taken into account.

By better understanding the process, as summarized above, you can better prepare and know what to expect when a business appraiser begins working with your firm. If you're not currently working with a certified business appraiser who has experience in your industry, please contact us and we will get things started for you.

When you've worked hard to position your business for expansion, it's difficult dealing with the likelihood that not everyone sees the potential growth right now, when you most need them to. If you need to get more today for your business' future plans, you need partners who can help you obtain everything you can in today’s market.

Valuing a rapidly growing company is a challenge, but well worth the effort when it's time to consider a new investment, or possibly merging with another operation. The same can be said for those looking to invest in or even purchase the business.

There are several reasons you see the potential for rapid growth in your company. New market expansion, increased product and service demand, higher commodity prices, and changes in your operating efficiencies are just a few. Whatever the reason, your company is growing, and you want to take advantage now. Where do you go to make that happen?

A common, less effective way is to simply discount the value of that growth over a short-term, fixed future period, ultimately dictating a lower than expected business value thus, receiving less consideration than you should. On the flip side, you may overestimate the growth rate, and over-leverage your position as the value is not supported by realistic growth expectations.

The best option is to hire an experienced, certified appraiser to perform a company valuation. One who has experience in your industry and with growing markets 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 forecast to earn over the next several years? If it's realistically and materially higher than in the past, it will be taken into consideration when determining current business value.
• Market Conditions: Is the market booming, with many businesses 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, trends may change, though strong companies that are well managed through may expect to see a stronger market share in future upswings.
• Innovation in the Industry: Is your business viewed as a leader in innovation or does it create the same basic products and services as every other company across the industry? If you have a history of innovation, it can be reasonably expected that your growing company will continue to see strong growth, supporting a higher value.
• Goodwill and Reputation: Does your business have a reputation for excellence in the industry? A strong reputation can make a huge difference between reliance on one-off sales or loyal, committed customers who come back for your services and products time and again.

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 substantiate that effort. A certified business appraisal conducted by an experienced valuation professional lets you take advantage of these future earnings, allowing you to benefit today from the forecasted plans.

How is a Private Medical Practice Valuation Different From Other Business Valuations?

There are a number of factors that impact your private medical practice's overall value. To start, what is your company's reputation in the community? If your business has a reputation for exceptional patient care, unique approaches to treatment or being able to provide at-home care for patients, these types of factors can greatly increase your company's bottom line. Why? This type of treatment is often sought out by those who want to make sure their family is well-cared for, to seek out treatments that are not commonly offered or to avoid having to move a sick child to have an evaluation and treatment plan developed.

What about the people who make your private medical practice exceptional? If you have top-performing doctors and nurses, you'll often have a larger following and will have people flock to your practice to receive treatment from these individuals. By comparison, if you have poorly-performing staff, patients may be reluctant to seek treatment at your facility, lowering your company's overall value due to lower demand.

Are you in a rural or urban area? Specialist medical practices in urban areas are often worth more than a general practice in a rural area, partially due to the availability of local patients as well as the demand for specialty treatments. However, many rural private medical practices have lower expenses and may have a devoted following, especially if the main practitioners have been a part of the community for many years.

How up-to-date are your practice's assets? If you have out-of-date equipment or are unable to keep up with changes in technology due to budgetary constraints, patients may seek care elsewhere to receive more exacting imaging and test results. However, if the race to have the latest and greatest equipment has put your practice into debt, that may result in a lower overall business value.

When your business involves the great outdoors, planting and nurturing the earth in a landscaping company, the value of your business may seem ambiguous at best. How do you determine the value of your company? A landscaping business appraisal can help, but to fully understand the appraisal report you'll receive it's important to understand the different approaches to appraising your landscaping company. Here's a quick summary to help get you started.

What Are My Options During a Landscaping Business Appraisal?

Asset-Based Appraisal

An asset-based appraisal looks specifically at the value of your company's assets: lawnmowers, real estate, vehicles and similar assets. It's based on the idea that a smart buyer will only pay what the company's assets are worth, but it misses out on a lot of other areas, such as the goodwill you've developed in the community, future income or the market value of your business. This is why this type of appraisal is usually only used by companies that are failing or facing insolvency, because a business outside of these conditions will have some additional value that needs to be carefully considered during a sale, transfer or merger.

Income-Based Appraisal

Because so much of your company's income is based on the services you provide, an income-based appraisal may make a lot more sense for your business. This type of approach looks at your company's income for the past several years and projects it out into the future. At that point, the value of your future business income is estimated to help determine the company's value. This approach uses a couple of different methods, one of which, capitalization of earnings, is based on regular income and the other, discounted earnings, which is based on irregular income or business growth. In either situation, the appraiser will take into account any unusually high income or expenses, such as a large project or replacing an unusually high amount of equipment, and will provide a journal adjustment entry to normalize the unusual income or expense.

Market-Based Appraisal

If your business has been very successful in the recent past and there's a lot of demand for your company's services well into the future, an interested buyer may be willing to pay more because of anticipated high future growth. This market-based approach can use a wide range of factors, but will often base the value on a similar publicly-traded company's value. Because publicly-traded businesses have to file financial information, it's easy for the appraiser to match your company's transactions, discretionary earnings or revenue multiples to one of these companies and then make small adjustments to the figures to reflect your privately-held company's expected market value. This substitution provides solid, publicly-available information to back up the estamted value of your business.

By understanding the approaches used in a landscaping business appraisal, you can make better use of the information you'll find in the appraisal report provided to you by your appraiser. However, it's important to only work with a certified business appraiser, who can provide you with an estimate of value for your company that is based on sound, time-tested appraisal practices and methodologies. Make sure to ask your appraiser about their certification, because a certified business appraiser will always be happy to discuss these details with you.

When you're in a position to have a business appraisal performed on your company, have you ever thought about the vast amount of knowledge, skills and expertise that a certified business appraiser needs to have to be able to determine the value of your business? It's a very specialized skill set that is often overlooked in everyday life. Here's a quick look at the skills that are required of business valuation specialists as they go about their jobs every day.

What Kind of Skills Does a Business Appraiser Need to Have?

• Serious attention to detail. Consider, for a moment, the complexities of your business. Now imagine having to determine all those complexities within a very short period of time! Business valuation specialists need to have a serious ability to ferret out every detail about your business that is necessary to create an accurate assessment of its value.
• Ability to work through complex calculations. The market is up, the market is down, one business is very similar, another is very different. There are a wide range of factors that come into play when calculating an accurate business value, requiring an appraiser to have a very strong set of math skills to keep up with constant changes during the process.
• Thirst for knowledge. Because an appraiser needs to get into the nitty-gritty details of every aspect of your business, they need to have an innate thirst for knowledge. Not only do they need to understand the value of your products, they need to understand where your company is innovative and where it needs to catch up. This requires a strong love for learning.
• Strong research abilities. Which other businesses is your business similar to and which ones is it different than? Being able to pick out these differences and discover the fine lines that make companies unique is a definite strength when an appraiser is working on different company valuations all day.
• Real-world communication skills. Have you ever worked with someone who just couldn't explain the process? Because business valuation specialists have to work with their clients to develop a fair value for a business, they need to have strong communication skills to get the job done right. This allows them to ask the right question for every situation that may arise.
• Ability to adapt to changing circumstances. Is this company going out of business because of a bankruptcy or is it being sold at a premium to the perfect buyer? Because every appraisal is different, it requires the business valuation specialist to go into each situation with the ability to adapt to that particular case and apply their knowledge fairly across the board.

A business appraiser needs a diverse set of skills to be able to perform the job they do on a daily basis. It takes a lot of time and dedication to develop these skills, whether through a training program or through on-the-job experience. When you need to have your business appraised, do you want to have the business appraisal determined by someone who is simply making a guess based on their general experience, versus a professional who has taken significant time and effort to become certified and develop these skills? Working with a certified business appraisal specialist delivers real value for your company

Construction is and has always been a boom/bust business. Either business is so great that you can't keep enough people hired or so poor that you're barely keeping the lights on. How can you ensure your construction company will make it through the hard times and get the best out of the good times? A quality business valuation performed by a certified business appraiser provides you with amazing insights into where and how your company is profitable and how to plan for coasting through the rough patches. Here's how:

Valuing a construction company to navigate industry slumps

Many business owners consider the valuation of a company using serious business appraisal methods to be something for Wall Street. But how do you think the big companies got there? The owners, executives and managers paid close attention to what was going on in the business and made good decisions. Much like the stock market, construction has a lot of ups and downs, and to take advantage of market conditions, you need to know what shape your business is in first.

If the market is going into a slump and there's a competitor considering selling out, is it a good time to buy? It could be, even if the market is going into a decline, if both your business and the other business are on solid financial footing. The best tool to use to make a smart decision, especially if you don't have a solid background in business yourself, is having business valuations performed by an experienced business appraiser. But why wouldn't you use the asking price as a point for negotiations? Surely the owner wouldn't be asking too much for the business, right? Not necessarily. An asking price is just that. It's an opening point for negotiations and represents what the owner hopes will come from the sale of the business. A business appraiser takes many more considerations into account when valuing a business.

What about the new machinery you're considering buying during an upswing? A business appraiser's recommendation might be to get an equipment appraisal to give you a better idea of what your assets are actually worth rather than a random estimate. This can help qualify you for better financing and lower interest rates, which allows you to put even more into your business. Basing your assets only on what a balance sheet says after tax time can leave you under- or over-estimating the value of your assets. Why? A tax accountant takes the value of your assets and depreciates them over a certain amount of time. The  2-ton box truck you use may be completely depreciated in five to seven years, showing a zero value in your accounting system. But what if it dies after three years and you lose money because it wasn't completely depreciated? What if it lasts 12 years and still has value after being completely depreciated? A formalequipment appraisl will take these factors into account.

Having a business valuation performed on your construction company helps you navigate the rough times and take advantage of the good times. It allows you to take your business further while protecting your investment against unnecessary risk. Are you ready to improve your construction company and your chances at real success? If you're not currently working with a certified business appraiser with experience in construction, you're leaving yourself open to risk.

You work hard to make your business successful. But do you know where your business' best market position is? By valuing a woodworking company, it's much easier to see which segment of the market your company will see the best profits. Here's a look at several ways a business appraisal helps determine the best course of action:

Craftsman Quality: Valuing a Woodworking Company for Market Positioning

What does your company do well and what does it do poorly? You know you need a unique selling position, but maybe you are not quite sure what that position actually is. Does your company provide basic MDF furniture that comes ready to assemble or masterpieces of grain and craftsmanship? Does it operate best by providing one of a kind heirlooms or mass produced pieces? It could even be that you're still figuring out where your business needs to market itself to get the best profitability. Business valuations help provide insight into your company and where it is best suited.

A quality business valuation takes into account not only your business' net value but also the state of the industry, your competitors and the strong and weak areas in your business. A business appraiser who has experience in your industry can often see patterns or potential problems you may not, giving you great insight into how your business is functioning. Do you have too much money tied up in equipment that is ineffective, costing you labor and utility overhead? Is there a cash flow issue that is lurking in the background? Does your business have enough equity to invest in a new direction or will it be too high a risk of losing your business if things don't work out as you wish.

A good business appraiser also has experience in the industry and may be able to spot changes in the market that you haven't anticipated. If the economy is in a slump, a mass-produced line of inexpensive furniture may sell well, while a company specializing in high-quality, unique pieces may need to alter their marketing approach compared to when the economy is doing well. Alternately, when the economy is thriving, there may be less demand for inexpensive furniture and more demand for higher-quality items. 

What about your competition? What sets you apart from the rest of the crowd? A business appraiser may be able to note areas of your business that boost your business' unique selling point. You could have an exceptional website and digital marketing program that positions you for internet sales. Maybe you have contacts with larger distributors that allows you to get your work into the stores faster or more easily than your competitors. Because a good business valuation provides detail customized to your business and your current needs, you get much more out of the report than just a simple calculation of your business' value.

By valuing a woodworking company, you can get great insight into what your company does well and where it needs improvement. This helps you position your company for success while fixing any issues that may have shown up in the valuation of a company.

While mergers are announced with much fanfare, many of these deals fail to live up to their hype. If your business is considering a merger, how can you avoid becoming one of the many merged businesses that do not deliver added value? A simple solution to increase transparency and align the deal for financial success is to seek business valuation services before the merger. Learn how a company valuation can help in this situation. 

Why Seek Company Valuation Services Before a Merger?

A merger can be confusing for all parties. In the uncertain aftermath, decisions may be made hastily that have lasting impact on the success or failure of the merger. 

By seeking a business appraisal in advance, all parties can ensure that the business value is cataloged by an independent third party with industry expertise. A dedicated business appraiser can review the financial documents, assets, liabilities, and full health of the business, and then advise on business strengths. This information helps key stakeholders make more informed decisions on how to proceed after the merger. 

Getting an independent valuation of a company also helps all parties negotiate the financial terms of the deal. A business appraiser will compare the business to companies that are similar in size and nature.  Appraisals can also be completed taking into account some assumed synergies with the other company.

The Dangers of Mergers Without Business Valuations

Without an appraisal, companies might disagree on key terms of the deal or fail to take action that is in line with the best interests of the merged business. Worse, companies could come to regret terms, creating a partnership mired in bitterness. 

There are so many key details to be ironed out during a merger that the day to day running of the business can fall low on the discussion list. Unfortunately, these very processes are the key to getting the business running after a merger and retaining high value customers. Delays here could cause top talent to migrate elsewhere or nervous customers to choose another service provider. 

By uncovering valuable information that can guide negotiations, company valuation services can streamline merger and acquisition talks. When leadership can settle the financial terms of the merger more quickly, they can then move on to discuss other key variables - and plan for success after the merger. 

When it comes to anything as complicated as a merger, it is vital to have key information ahead of time. Since a company valuation appraiser is independent, unbiased, and thoroughly knowledgeable about the unique business industry, he or she is best qualified to uncover and present this important information.