If you are a business owner who manages multiple product or service lines, you may be structured as a consolidated company with multiple divisions. These affiliated or subsidiary operations roll up into the primary business for accounting purposes, which facilitates the requirements you have for tax and other reporting purposes.
When it comes time to consider appraising any or all of these businesses, you will want to discuss the level of detail and depth you need to take to accomplish the task, while keeping in mind the time and cost associated with the valuation effort.
Let’s look at two scenarios for your business, which in this example consists of three divisions, a primary LLC company, and two dba operations. You file consolidated taxes and prepare one balance sheet and income statement as an S Corp under the LLC while keeping unaudited separate books for each of the three operations.
In the first scenario, you are considering selling off one of the two affiliates and need an appraisal of that component of your business only. If you don’t have detailed financial statements separating each entity, then you will need to advise your appraiser and they can determine the available options. One might be to value the main LLC company while taking the results and breaking them down internally and applying a percentage of the total to estimate the value of the subsidiary. This may not be 100% reliable given the potential inaccuracy of your assumptions when making these adjustments. A better option may be to create a separate income statement and balance sheet for the subsidiary that the appraiser can reasonably rely on and have them value both the LLC and the affiliate or just the affiliate, depending on your needs.
Under the second scenario, you are looking for new investment either through equity infusion or debt financing and the investor or bank needs to review the financial strength of the entire operation. In this instance you can likely just have the appraiser value the consolidated business, relying on the reported financials while holding general discussions with the third parties as to the breakdown of the overall company.
Regardless of the potential situation you find yourself in, it is always a good idea to keep separate books for each division either formally with the support of your accountant, or through your own internal organized bookkeeping process. This will enable you to have the financial data available when needed for the appraiser who can best understand the overall business and allow them to break down the value of your subsidiaries in a reliable and supportable way.