Business Valuation Blog | Understanding Buying / Selling a 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.