Business Valuation Blog | Understanding Buying / Selling a Company

New year’s resolutions aren’t just for personal lifestyle improvement. You should also review your success as a business owner or employee and determine how you can continue to improve practices and become more successful, with an eye on your future. One of the hardest things to do, in both our day-to-day lives and as business professionals, is examine what we can do better and permanently change old, inefficient habits to create a more optimal outcome.

In business, you should feel invested in making course corrections for your company or career each year as you assess past achievements and look to improve in areas where results were less than ideal. This behavior is part of the core foundation of a long-term growth strategy that keeps you and your company operating as effectively as possible. The industry and marketplace you work in will be evolving over time, so you need to keep up with these changes and take advantage of them. Also, consider reviewing your internal structure and processes, and determine whether there is room for improvement in areas that drive operational efficiency.

If you are a business owner, look at the rest of your team and see who has outperformed expectations and how they might help take your business to the next level by promoting them or expanding their responsibilities. Or, as a peer employee in the business, take a page out of their book and acquire similar best practices that will set you apart and create new opportunities. On the other side of the spectrum, examine employees and peers who may be counterproductive to the company and determine if you can bring them back into the right motivational mindset or decide if they are not what you need to be around to accomplish your goals in the coming year.

Even if you had a successful 2025 and have been successful in years past, never get complacent; continue to improve and create further growth opportunities. The concept of “if it ain’t broke, don’t fix it” doesn’t apply in situations where constant change occurs, whether directly in your control or external to the markets in which you work.

Consider obtaining advice from key advisors and managers whom you trust and work with on a regular basis. Objective opinions outside of your own experience are always useful to potentially view things from different perspectives before you fully commit to a course of action.

The ultimate goal is to give yourself the opportunity to be the best version of yourself and realize that it may look a little bit different each year as you face new challenges. Every objective may or may not be accomplished; however, putting in the effort and carefully considering all the options to remain successful and continue to grow will be rewarding.

Every business has driving factors that determine its success. Key variables that have to work in order to be considered a winner. It’s important to take a hard look at your company and understand exactly which factors drive these outcomes so you can continue to maximize their positive impact on revenue and net income.

What components of your business are making the biggest difference to your bottom line?

Here are some possible drivers:

• Marketing variables such as website optimization (SEO), social media messaging, and a strong sales team.
• Unique product development that sets you apart from your competitors and allows you to provide customers with better pricing and more effective performance.
• Consistent client communications and commitment to the timely delivery of your products and services.
• A strong reputation in the market based on many years of experience, expertise, and proven results.

It might be a combination of these variables, or something even more distinctive, that creates the value added that separates your business from all others in your industry.

As a business owner or leading executive, it is imperative that you have a strong understanding of what these factors are. You can then discuss each one in detail with employees, service providers, and suppliers. Bring in your outside consultants and service providers, such as accountants, financial institutions, and investment advisors, and discuss how these advantages can support future growth and investment.

When independently valuing the business, or when contemplating a merger or sale, inform your appraisal professional and advisors about these success drivers so they can highlight and factor them into their analysis.

Everything may not be black and white, and it may not be easily determined on your balance sheets and financial statements; therefore, it’s vital to create a straightforward way to break down the numbers further and show interested parties how it all works in the day-to-day operation.

In summary, by understanding these winning formulas and knowing how to highlight them in your business model, you will create ongoing opportunities both internally for growth and sustained success, as well as future investment, partnership, and eventual sale.

Business owners may occasionally require a certified valuation in transactional situations and typically respond in a reactive manner to complete the task. Few, however, realize how crucial it is to keep that valuation current. An appraisal provides a snapshot of your company’s worth at a specific moment, but business value is never static. Market conditions, operational performance, and industry trends are constantly changing. Obtaining an updated business valuation annually is a smart and strategic move for many reasons.

Even if your business has a stable track record, the factors that drive its value rarely stay the same. Revenue may rise or fall, new competitors may enter the market, or industry multiples could shift. An annual valuation update captures these changes, ensuring you always have a current and accurate understanding of your company’s financial position.

Current information is critical for decision-making. Whether you’re budgeting for growth, considering expansion, or evaluating a potential merger, an updated valuation provides the foundation for sound strategic planning. It can also help measure whether past initiatives continue to add value over time.

Being proactive can minimize the effects of unexpected events. For example, if a potential partner wants to exit the firm, having a current valuation on hand allows you to act quickly and negotiate confidently. Business disputes and even personal life changes, such as a divorce or a change in your health, can be tackled efficiently and effectively with an updated valuation that protects your personal interests.

For owners considering succession, annual valuations help track progress toward their transition goals. They also provide critical support for estate planning, gifting strategies, and buy/sell agreements. Accurate, current data makes these processes smoother and more defensible.

Banks and investors rely on credible valuation data to assess financial strength. By maintaining an updated valuation report, you demonstrate transparency, accountability, and a commitment to understanding your business, all traits that inspire confidence in financial partners.

Updating an existing valuation can be less expensive than starting from scratch. Most of the foundational work is already done, and the appraiser can update their analysis and report in a more timely and cost-effective fashion.

In summary, obtaining a business valuation shouldn’t be a one-and-done exercise. Just like you review your financial statements each year, updating an appraisal annually ensures you always know where your company stands. It’s an empowering step toward planning, protecting, and growing your business with confidence.

For many small business owners, the value of their company is often based on their own belief or a quick calculation from a cheap or even free, unsupportable source. While this approach may seem easy, it often leads to inaccurate conclusions that can cost an owner money, opportunities, and credibility. A certified business valuation, performed by a qualified appraiser, provides clarity, accuracy, and peace of mind, while taking the guesswork out of the equation.

A small difference can have a significant impact when appraising your business. Over or underestimating value can create concerns with lenders and potential buyers, as well as internal tax and accounting requirements. Certified valuation professionals utilize proven methodologies under the income, market, and asset approaches, which take into account appropriate financial, market, and industry data.

Business owners often face critical decisions regarding the future of their company. Whether it pertains to selling, bringing on investors, securing financing, planning for succession, or resolving disputes, a fair and realistic value assessment should be a top priority. All these potential events require a defensible number, not a guess. A certified valuation provides the credible documentation that stakeholders, banks, courts, and potential buyers trust.

Owners often tend to rely on “rules of thumb” or anecdotal comparisons that do not account for the specifics of their business. This oversimplification can lead to undervaluing strengths or overlooking risks. A certified appraiser considers all factors that may impact value to create a complete, unbiased picture.

While a certified valuation comes with a cost, it often saves or earns business owners much more over time. By knowing the true value of your business, you can negotiate effectively, plan strategically, and avoid costly mistakes that arise from guessing.

In summary, a certified valuation is not just another report, but a tool that empowers small business owners to protect their hard work, maximize opportunities, and move forward with confidence. Guessing the value of your business is risky; knowing it with certainty is powerful.

Take the extra time and effort and reach out to a valuation professional today who can provide additional insight into the importance of obtaining a certified business appraisal.

Getting your small business valued is essential, especially if you want to make informed financial and strategic decisions. Here are some key reasons why a business valuation is crucial:

1. Understanding the True Value of Your Business/Internal Planning

   An appraisal helps you understand what your business is actually worth. Many owners have a general idea, but a formal valuation gives you a clear, objective figure based on market trends, financials, and future potential.

   A valuation can also be a benchmark for tracking your business's financial health and growth over time. It can highlight areas that need improvement and allow you to set measurable goals.

2. Selling or Merging a Business

   Knowing your business's value is essential to negotiating a fair deal if you're planning to sell or merge it. It also ensures you're not underselling or overestimating your company when approaching potential buyers or partners.

3. Attracting Investors or Raising Capital

   Investors will want to know your business's current value before committing funds. A certified appraisal helps attract investors and secure better terms in funding rounds or when applying for loans.

4. Exit or Succession Planning/Tax & Estate Issues

   If you plan to retire or want to determine a sound exit strategy, a business valuation helps in planning for the transition. It also assists in setting fair expectations for all parties involved.

   Independent objective appraisals are necessary for estate planning, especially when passing on your business to family members. They ensure compliance with tax laws and help minimize tax liability during inheritance or ownership transfers.

5. Litigation and Legal Matters

   In cases of divorce, shareholder disputes, or business litigation, a formal valuation is often required to resolve the financial aspects. It provides a clear figure for settlements, buyouts, or compensation.

For these reasons and others, it makes good business sense to have your company appraised by an independent valuation professional to ensure you have a true and objective picture of its value in order to make fully informed choices.

We speak with small business owners daily about their interest in obtaining a valuation, usually for a specific and immediate purpose. The reasons typically involve any of the following:

• The owner is going through a divorce
• A partner wants to buy out their shares, or a new investor wants to buy in
• Refinancing or SBA Loan requirements to obtain working capital
• A potential sale or acquisition of a small business
• Estate Settlement/Transfer or Gift Tax
• Setting up a Trust
• Litigation Support
• Internal Business Planning

The last one listed here is the most interesting because it tells me that a business owner is likely thinking proactively to better prepare themselves for future development plans, ideally in the company's longer-term growth planning stage.

Rather than waiting for something to happen that triggers a more urgent need for an updated small business valuation, it might make sense for owners to have professional appraisers conduct annual valuations of their business so that whatever happens down the road, they will be better prepared to face the challenge.

We often witness an owner's hesitation to move forward with an appraisal once we provide a scope of work summary and fee quote. This may be a matter of cost or unwillingness to commit to the work effort involved. Whatever the reason, it's important to think about the decision not only in terms of the immediate need but also with an eye on the additional benefits an appraisal can provide as you continue to be a successful small business owner.

Partnering with a third-party consultant such as a certified appraiser, tax planner or investment advisor, can give you additional perspective from an "outside-in" view that can help you along the way as the company continues to evolve. I think you'll find that the additional time and investment involved with this type of engagement will be minimal in comparison to the overall benefits of fully understanding the worth and potential of your small business.

Let us know if you would like to discuss these topics further by reaching out to us through our website. We would be happy to speak with you personally.

The type of small business you own and its operating history will largely dictate how a certified valuation analyst (CVA) will approach appraising your company. The industry-accepted methodologies considered and ultimately relied upon will play a material role in determining its overall value. Here are a couple of examples:

Scenario 1: If your business has been established for several years in a competitive industry and has shown steady revenues with modest levels of annual growth, then it’s likely the CVA can use both income and market-driven approaches to value. The income approach will consider this consistency and create a discounted cash flow analysis utilizing the Capitalization of Earnings Method. This approach will consider your adjusted net income and create a future income stream which can then be brought back to a current date using an appropriate discount rate.

Under this scenario, the appraiser can also consider and rely upon two types of market approaches, one driven by your company’s annual gross revenues and another by your adjusted net income. By applying multiples to these figures derived from similar market comparable transactions for your industry and business type, the CVA will be able to estimate value.

The result will create three different value perspectives, which can be weighted equally or favor one approach over another depending on the reliability of the variables involved.

Scenario 2: If your business is in its infancy with minimal to no historical financial data behind it, or if it is in a somewhat unique market, then it is likely the CVA will only be able to rely on the income approach to value. In this case, they may look for you to provide a reasonable 5-year forecast which can be factored into the analysis while utilizing whatever financial data is available. Startups looking for new investment for working capital are examples of this as well as companies who operate in niche markets where no comparable data is available.

Scenario 3:  Your business has been in existence for a long time but stagnating over the past few years, possibly as a result of the COVID pandemic, or other market factors, with stabilization and future growth becoming highly unlikely. In this instance, the market approach may be the only option as the income of the business has been inconsistent and unreliable.

In summary, it’s always important to take a proactive approach when obtaining a valuation of your small business. Speak with a certified appraisal professional to learn more about what options will work best for you.

You’re a small business owner who has spent years developing and growing your company from a start-up to a fully established operation. Now that you have reached your initial long-term goal of becoming a successful enterprise, you can start thinking about the next chapters.

Are you content to maintain the current profile of the business and hope for consistent revenue with modest growth over the next 5+ years, or potentially capitalize on your expanded knowledge, market share, and client base to take a bigger leap forward that could possibly put the company in the next tier of small businesses?

To put this in perspective using an arbitrary example, let’s say a small landscaping business just surpassed $1,000,000 in gross revenue with a 20% profit margin after doubling these figures compared with 3 years ago. The business hasn’t needed to take on any additional working capital or expand its employee base over this period to realize this initial level of growth.

The business owner may determine two forward paths over the next 5-year plan that will shape the company's future. The first would be to remain content with the fact that they have reached this initial goal and can look to grow 5%+/- per year based on their existing structure and try to trim expenses and improve profit margins by 10-15%.

This scenario would keep the current employees and clients happy and allow for a steady income stream for the owner who might want to retire or sell the business to its employees or a competitor sometime in the next few years.

The second option would be to take an aggressive growth position now that the company is firmly established with a broader goal of doubling or tripling the size of the company over the next 5 years. What might be a reasonable strategy to accomplish this loftier goal?

The first may be to leverage the existing demand and reputation the company has in the existing market areas while realizing that hiring additional employees would enable them to take on the extra work without overtaxing their current staff. This may lead to significantly increased gross revenue but might reduce profit margins given the expanded overhead.

Another strategy might be to research your competition in nearby market locations and attempt to acquire one of these businesses and expand the company’s territory. This effort would require a lot of due diligence to target the right business and might require a working capital loan to purchase the company. The short-term effects may result in lower margins and a greater risk associated with the transaction, however, the potential of creating a more diversified business with immediately impactful growth results will go a long way to increasing the value of the company.

Either path you decide to go down will be an exciting one.

One of the most exciting and daunting experiences for a business owner is when the time comes to sell the business. After years of hard work, development, and growth, the day eventually arrives when you believe the best option is to cash out and move on to the next chapter of your life.

One of the most essential steps in the selling process is to obtain an independent valuation of your company so you can understand the fair market value of the business as a whole, as well as the underlying tangible assets and goodwill. The appraiser you choose to work with should be certified through the NACVA, ASA, or some other nationally recognized association. Make sure you discuss their credentials before moving forward.

If you own a lot of equipment and real estate as part of your asset base, you should first engage with accredited appraisers who specialize in those areas before completing the full company valuation. Once that’s complete, the business appraiser will include those value estimates as part of their review, along with the rest of their analysis.

Take time to go through your financial documents with the appraiser so they understand the adjustments that should be made to non-recurring and discretionary expenses so you can present the optimal profitability of the company. Two of the key variables in the analysis will be your gross revenue and adjusted net income (EBITDA), along with the potential for future growth, which can be determined based on a reasonable forecast of future revenue over the next 3-5 years.

Since you are selling the business, as an owner, you are expected to settle the liquid assets and liabilities reported on your balance sheet, specifically the cash, short-term receivables, and any outstanding debt. Hopefully, the net outcome for these is positive, so in addition to the value of the business, you can walk away with additional cash to supplement the overall sale price.

The buyer understands that when they purchase the company, they will need to develop their own sources of cash flow, whether that be personal capital, taking out new loans, or developing equity from investors.

Selling your business will likely take a lot of patience and communication to provide all the necessary support documentation to potential buyers, and you may want to engage with a business broker familiar with your industry and markets, who can assist with the overall process. In the end, make sure you are comfortable with all the terms of the deal, and carefully read through the documentation involved. Consider hiring a business attorney to make sure you have all your bases covered and when it is all over, take a deep breath and enjoy what comes next.

For new business owners, it can take years to finally reach a point where a certain level of success is reached, and all the hard work and long hours finally pay off. Success is measured in different ways and can be fleeting or inconsistent. There are many reasons why success is eventually achieved, the most obvious being dedication, relationship building, and developing a competitive edge that sets your company apart from the rest.

In today’s business climate, there are both new and old concepts to consider when developing a longer-term game plan. The key to longevity is understanding and taking advantage of these areas and building a business model that creates optimal efficiency and effectiveness year after year.

Here are a few to think about:

Website Development and Search Engine Optimization (SEO)

Small businesses no longer need to rely heavily on word of mouth and referrals to grow their business and attract leads. In today’s climate, there are a lot of potential customers who will simply search the web when they need products or services. Even local businesses that have a small regional customer base will benefit from having a great website and SEO model that drives their company toward the top of “Google” searches. It’s the simplest and fastest way for customers to find what they’re looking for so take advantage of it. Consider upgrading your website and its searchability to increase your volume of leads.

Key Employee Retention

You can give yourself as much credit as you deserve in succeeding with your small business, just don’t forget the others who have helped get you there. When you are fortunate enough to have key employees who work as hard as you do and fit into the model that you are building, don’t let them go. Great workers don’t grow on trees and can be just as critical to the company’s growth as you are. Do what it takes to retain them and acknowledge their importance to the business.

Maximize Your Cash Flow

If COVID taught us anything, it’s developing a business that can sustain itself when revenues are down over a steady period. While that experience might be an anomaly, you should consider structuring the financial side of your business so it can remain healthy during slower revenue periods without constraints on making payroll and fixed expenses. Think about stashing some funds away, restructuring your debt, or leveraging some equity you might have in real estate or equipment. Don’t overinvest in long-term projects that might have additional risks associated with them. In other words, manage your money for the long term and you will have a greater chance at continuing success.