Business Valuation Blog | Understanding Buying / Selling a Company

Your Business Appraiser Does Not Need to be Local

Posted by Business Valuation Specialists LLC on Mar 11, 2024 7:30:00 AM

Small Busines Owner Happy with Business Appraisal

There is a misconception in the valuation industry, which some of our clients express their concern over, that their appraiser needs to be located in close proximity to where their company is situated. It is understandable that a small business owner, who themselves may have several local relationships with their own clientele, would raise this issue; however, the fact is that experienced, certified professional appraisers can effectively value any company, regardless of where it is located, and what local markets it may be operating in.

During the valuation process, a qualified appraiser will work with their clients in a “hands-on” fashion to gather all the specific company information needed to complete an accurate and supportable analysis, and ultimately deliver a full narrative report. Each client has the opportunity to discuss the details of their company that go beyond the black-and-white picture created by their tax returns, income statements, and balance sheets, allowing for reasonable adjustments to be made that paint a more colorful, complete, and truer picture of their business.

The appraiser has access to market and industry data across every region in the country and will take into account the nuances of how the company works within these areas, in relation to their competitors and client base. They will look to understand the specific strengths and weaknesses the business has, as well as their ability to leverage the former and improve on the latter. Future growth plans will be considered regardless of whether they are aggressive, modest, or even negative.

Based on the sum total of the data provided, an educated, trained, professional appraiser considers the same set of consistent approaches and methodologies for every valuation and determines how best to apply and weigh each one specifically to the business. The underlying assets of the company will be taken into account, as well as the specific purpose and effective date of the appraisal.

As you can see, the appraisal process is a collaborative effort that relies upon both the independent valuation professional and the business owner/representative to work together and develop a complete snapshot of the company. By the time the project is over and the report is delivered, it will become clear how well the appraiser understands the business, even though they weren’t local to the area.

Tags: small business valuation, certified appraisal, business appraisers

Appraising a Holding Company

Posted by Business Valuation Specialists LLC on Aug 28, 2023 7:30:00 AM

value of holding company in a business appraisal

We discussed in our last post the three most common methods utilized when performing a valuation for small businesses:

  • Capitalization of Earnings method under the Income Approach
  • Direct Merger & Acquisition Method under the Market Approach
  • Adjusted Net Asset method under the Asset Approach

Depending on the overall scope of work involved and the structure of the company, only one or two of these methods may ultimately be relied upon.

For example, let’s look at a typical holding company, which is often structured as more of an investment business versus a traditional revenue-driven operating company. Common holding entities will own assets such as real estate, securities, heavy equipment, mineral rights, or even a group of smaller operating businesses. The assets may be rental properties or those commonly traded in the market. These holding businesses are often utilized to consolidate ownership interests and management structures while creating certain benefits and protections for the owners.

Regardless of the structure or the assets being held, revenue produced by these companies is meant to simply sustain operations as opposed to drive income and profitability. Therefore, appraising a holding company using the income or market approach methods would not be practical. The value of the underlying assets would be more appropriate utilizing the adjusted net asset method.

A business appraiser will need to rely on independent appraisals to confirm the value of the primary assets while adjusting for cash, receivables, liabilities, and other balance sheet items. It would not be prudent to simply rely on estimates supplied by the business owner without these unbiased reports.

Another issue to consider when valuing a holding company is the possibility of a discount for lack of control with the ownership interest being appraised or for a limited degree of marketability. These types of discounts are considered with any small business that has multiple owners for partial buyout or buy-in purposes, or for potential liquidity issues arising from a sale.

Holding companies should not be confused with “shell” companies, which are structured for different reasons, such as tax and accounting regulations, and are often the subject of negative press due to a history of investigations into the validity of certain enterprises. To learn more about appraising holding companies, consult with a certified valuation professional.

Tags: business valuations, certified appraisal, Holding Company

The 3 Approaches and Most Commonly Used Methods of Business Valuation

Posted by Business Valuation Specialists LLC on Aug 14, 2023 7:30:00 AM

methods and approaches to small business valuation

A Business Appraisal relies on three broadly accepted approaches that consider all the potential variables that factor into a valuation: The Income Approach, Market Approach, and Asset Approach.

These approaches review and analyze historic performance, reasonable growth projections, and the underlying assets of a company to estimate value. Depending on the circumstances, one or all three will be weighed in the final assessment.

Within these three approaches, there are a multitude of methods by which business value can be measured, however, when appraising a small privately owned company, there are typically only three methods utilized. Here is a brief summary of each:

The Capitalization of Earnings Method under the Income Approach

This method looks at the future projected growth of a business where historic revenues can reasonably predict ongoing trends over the next few years. Future cash flows are discounted back to the present date of the appraisal to establish value on a current basis. This method is most appropriate when a small business has shown a relatively steady level of revenue and income over the last 3-5+ years.

The Direct Merger and Acquisition Method under the Market Approach

This method estimates the prices paid for closely held companies that are in a similar line of business and can be considered comparable. Based on the data available in the market, it develops multiples that can be applied to the gross revenue and discretionary earnings of the business being appraised.

The Adjusted Net Asset Method under the Asset Approach

This method reviews all the tangible assets in the company, including real property, equipment, F&E, and inventory. Estimates are ideally based on an assessment of market value, or if that is not available, net book value. It also factors in cash, receivables, and liabilities to realize a net asset value. This method can be applicable if a business is capital-intensive but not producing a lot of revenue or net income, while also being appropriate for a company that is winding down operations.

In summary, you can discuss these methods in more detail with a certified valuation professional to better qualify which approach would likely apply to your small business. Taking the steps necessary to understand these approaches and methods before committing to a business appraisal will help you avoid any unexpected surprises.

Tags: Business Appraiser, certified appraisal, small business valuation methods, Business Valuation Methodologies

Are Current Economic Conditions Affecting Your Small Business?

Posted by Business Valuation Specialists LLC on May 9, 2022 7:00:00 AM


business appraisal current economic conditions

There will always be differing opinions as to why the US, and the world in general, are facing significant challenges from inflation, supply chain delays, post-COVID hangovers, and many other economic factors that may have a negative impact on your family. If you own a small business, these issues can also impact your revenue and cost structure while creating new concerns you have never faced before.

In some cases, I have seen opportunities arise from these challenges, going back to the start of the pandemic. Savvy business owners have taken advantage of new markets during these difficult times, while others simply had no alternative options other than attempting to outlast the downturn. These latest economic issues appear to be seeping into every industry and business, from technology to energy to food markets, with no short-term solution in sight.

Regardless of the type of business you own and the effects the economy has taken on it, it might be a good time to consider reevaluating your company, given the recent changes that have occurred as a result. Taking a hard look at the state of your business can provide you with the ability to adjust course in certain key areas where revenues and expenses are concerned.

As we have all seen from past experience, there is always a light at the end of the tunnel, regardless of how long and dark it may be. Planning ahead with a strategically revised business plan, starting with a current assessment, can proactively put you in front of the competition.

Your future success and that of your business can, in part, hinge on creating new ideas that will open up opportunities created by these downturns. While many will continue to gripe and complain about the state of the world and how it negatively affects their livelihood, you can look to be one of those who seize the moment through insight and careful planning.

Tags: small business valuation services, valuation of a business, certified appraisal, Economic Environment

Completing a Business Appraisal for a Startup Company

Posted by Business Valuation Specialists LLC on Jan 31, 2022 9:00:00 AM

Business Valuation Appraisal Startup Company

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Most business valuations involve a review of historic financial statements and current assets, with a comparison of existing competition for similar businesses in your market. The requirements change, however, when you have a startup operation that has yet to earn a single dollar and is still in its infancy.

Of the many decisions that you will be making during these early stages, how best to provide documentation as to the future value of your business to potential investors, such as private equity and your existing banking relationships, will likely be at the fore. Before you spend every dime of your own investment savings, you will want to consider alternate sources of working capital with these partners.

One of the tools you will need to independently support the value of your startup is a certified business appraisal. Without the existence of historic financial data, the appraiser will rely instead on your forecasted business plan, which will include projected revenue and expenses, as well as the tangible and intangible assets you have already purchased, or plan to acquire in the immediate future. These growth models are typically built over an initial 5-year period, and structured similarly to how typical financial statements and balance sheets are prepared by accountants.

The appraiser will utilize these forecasts to consider the value of your business today, assuming the business plan is realized while discounting the income streams using accepted methodologies for startups within your market and industry sector. They will also compare your growth plans to competitors in these markets who have similar businesses, to ensure the forecasts are in a reasonable range.

It is important to balance common sense reality with your aggressive growth plans, to ensure these potential investors, and your appraiser, are comfortable there is a good chance of success and that the forecasts are in line with existing successful companies. Many startups fail for any number of reasons, but two of the most common are poor planning and overly confident forecasts.

If you can find the right partners, who share your vision, while keeping checks and balances of the plans in place, and there are well-researched, realistic goals set, the chance of success will be much higher. Add a bit of patience and endurance into the mix, and you can set yourself up for the best opportunity of developing a profitable business for years to come.

Tags: Business Appraiser, certified appraisal, business valuation services, startup, startup company

Valuing a Rapidly Growing Business: Get the Most Out of Your Forecasts

Posted by Business Valuation Specialists LLC on Apr 26, 2021 8:00:00 AM

Business Valuation for Rapidly Growing Business

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.

Tags: Business Appraiser, business appraisal, valuation, certified appraisal, future revenue, business forecast

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

Selling a Business? You Should Consider Obtaining a Valuation First

Posted by Business Valuation Specialists LLC on Jan 4, 2021 8:00:00 AM

Business Appraisal Fair Value Business Sale

If you are considering selling a business, ask yourself: Do you want to optimize the attraction to prospective buyers? Do you want to position your business for a fast and fair sale?

If the answer to either of these questions is yes, then you need a company appraisal to help establish value and properly guide a successful sale. Here are more reasons why you should engage a certified business appraiser before selling a business you have worked so hard to grow.

  1. An appraisal gives you an objective formulation for business value - Preparing to sell your business is a highly emotional time. For many business owners, the sentimentality risks clouding their judgment and causing them to act against their best interests. When selling a company, getting a business valuation from a certified appraiser means you receive an objective estimation of value that you can use to review potential offers. When you have an independent valuation of the company, you will not miss out on a reasonable offer from stubbornness or sentimentality.
  2. Shorten the time-to-sale - Too often, business owners get into a lengthy sales process because they fail to understand the true value of their business and misrepresent a reasonable asking price. During the valuation, the appraiser can estimate the present value of the business and support this analysis to the owner. With the proper knowledge, the seller is more likely to price the business competitively and obtain market driven offers. This results in a shorter time-to-sale than when an owner prices the business without backup and ignores offers that truly are in good faith.
  3. Position yourself early for a successful sale - If you want a successful deal, you will seek a business valuation well in advance of the sale. Getting the appraisal ahead of time helps you by providing an actionable list of ways to make your business more profitable when you go to sell it. After seeking an appraisal, you can tackle items on the list to make your business more desirable to potential buyers when you go to market.
  4. Lends you credibility - When you want to sell your business, a potential buyer will want to know that the financial data they review makes sense. Whether you are claiming to have a customer base of 100,000 or generating $5 million in revenue per year, a third party is going to want to investigate these claims before purchasing. The appraisal will facilitate this verification process, enabling the bidder to review the valuation report as part of their due diligence.
  5. Prevents you from undervaluing your business - While many business owners tend to overvalue their business, it is just as possible to undervalue it. Setting too low an asking price when selling may undermine the potential profits you could make.

In summary, accuracy is the key to selling your business efficiently and for a fair value. Turn to Business Valuation Specialists for help finding a certified appraiser who has experience performing appraisals for companies just like yours. The appraisal will greatly assist in helping you determine an asking price so you can advertise your business opportunity with confidence

Tags: valuation, appraisal, certified appraisal, Business Sale or Purchase Appraisal

What is NACVA and why does it matter for your business valuation?

Posted by Business Valuation Specialists LLC on Mar 14, 2018 8:46:00 AM

When you're considering having your business appraised, you'll probably hear a lot of new terms. NACVA, the National Association of Certified Valuators and Analysts, provides a wide range of services, including certification, for business appraisers. This designation can make a huge difference in your business when it's time to have an appraisal performed. Here's a quick look at what the Association does and how it will benefit your company in the long run.

What is NACVA and why does it matter for your business valuation?

Originally the area of certified public accountants and business professionals, business valuations have been used to determine a company's worth for several decades. However, prior to the formation of NACVA and similar business valuation certification organizations, the methodologies that were used by these individuals followed a wide range of approaches and calculations. When this information was brought before legal, financial, insurance and tax organizations, it was put through strong scrutiny to ensure the calculations were correct. Unfortunately, in many cases, the value that was calculated was determined to be incorrect, leaving many companies scrambling to provide alternative documentation of their values.

In 1990, NACVA was founded to support CPAs and business professionals in their valuation process. It developed tested methodologies for calculating business values in a wide range of circumstances. Over time, as these methodologies were put through their paces in legal, insurance, financial and tax circles, they were proven to provide the most accurate picture of business values. In the intervening years, the Association has certified over 35,000 financial and accounting professionals, including CPAs and valuation specialists. The majority of that membership, approximately 80%, are certified in one of the Association's three main certification programs: Certified Valuation Analyst or CVA, Accredited in Business Appraisal Review or ABAR, or Master Analyst in Financial Forensics or MAFF.

Where this impacts your company's valuation is in the level of detail and accuracy of the appraisal report that is generated by a certified appraiser. Because of the methodologies that are used, these documents often include vital insights into your company's performance and operations, allowing you to grow strong areas of your business while improving those areas that aren't doing as well. The report will also often include information on your position within your industry, providing you with options for solidifying that position or gaining ground in new areas that have until now been unexplored.

It will also look at your industry as a whole. Is it growing and healthy, or are there areas of concern that may be holding it back? Is it being impacted by digitization or disruption in the market? What are the current projections for growth? Because these aspects will impact your company's performance, they will be taken into account in the valuation report. Intangible assets, such as goodwill and reputation, will also be calculated into the final figure.

By being aware of what NACVA is and how it's certified appraiser members are able to bring more value to your business valuation, you can use that knowledge as leverage at the negotiating table, as insights into your business and industry and many more areas. Working with a certified appraiser ensures that your business valuation has been calculated using standardized methodologies that will stand up well to strong scrutiny in a wide range of areas, including legal, insurance, financial and tax circles.

Tags: certified appraisal, NACVA

How do firms specializing in valuation services operate?

Posted by Business Valuation Specialists LLC on Oct 5, 2016 12:30:00 PM


When you need valuation services performed to determine the valuation of a company, have you ever thought about what goes into building a valuation service firm? Are there minimum qualifications, certifications or licenses that are required? What groups oversee business valuation specialists to ensure they're doing their job properly? In this particle, we'll take a look at what it takes to provide valuation services to businesses:


Because business valuation appraisers specialize in appraising businesses, they apply a variety of business valuation approaches to analyze a company's worth. This requires both knowledge and intelligence in determining which type of appraisal to use in which situation and what practices are considered acceptable in the process. For that reason, business appraisers usually have a degree in addition to experience, training and certification. As business appraisal has come out of the accounting industry, many appraisers have experience or a degree in accountancy or business and likely have experience in business transactions. Some business valuation specialists focus on a particular industry or a specific type of business appraisal, allowing them to serve as an expert witness in legal cases to better explain the valuation methodology used in a variety of cases.


There are a number of accrediting agencies throughout the United States that offer certification through exam and experience to help ensure qualified business appraisals can be performed by its members. Here are a few of the agencies that are recognized and the certification they provide to their qualified members:

  • The National Association of Certified Valuators and Analysts (NACVA) oversees their Certified Valuation Analyst (CVA) program since 1991 and their Accredited Valuation Analyst (AVA) program since 1999.
  • One of the most widely known organizations, the American Society of Appraisers (ASA) oversees their Accredited Senior Appraiser (ASA) certification program since 1981.
  • The American Institute of Certified Public Accountants (AICPA) has provided the Accredited in Business Valuation (ABV) certification since 1997.
  • The Institute of Business Appraisers (IBA) has the oldest certification program in existence. Started in 1978, they administer and maintain the Certified Business Appraiser (CBA) business valuation certificate.

Legal requirements

One of the regular questions we are asked by clients is whether there are legal requirements for becoming a a business appraiser or to run a company valuation service. The Small Business Administration requires certification by one of the previously-listed accreditation agencies, including maintaining an active membership with at least one of the accreditation agencies and re-accrediting their certifications when needed. But beyond requirements, it is vital that a business appraiser receive additional training, have educational opportunities available and can build their experience through their work. Beyond that, some situations, including litigation and divorce, require using a qualified and certified business appraiser who has the knowledge and experience to use the proper methodology for each situation.

Benefits of working with qualified valuation services

When you use a qualified business valuation specialist, you know that your payment is going to provide a quality valuation report that will stand up in legal, financial and insurance circles. That means that whatever your purpose is in obtaining business valuations, you won't need to worry about the validity and that a valuation provided by an independent appraiser will stand up to scrutiny.

Tags: valuation services, certified appraisal