Business Valuation Blog | Understanding Buying / Selling a Company

Business Valuation: Working Through the Process is a Two-Way Street

Posted by Business Valuation Specialists LLC on Dec 4, 2023 7:30:00 AM

Small Business Owner and Appraiser working on valuation

When you decide your company needs to be valued for whatever reason, whether you are seeking additional working capital, taking on new investors, buying out a partner, retiring, or in the middle of a personal or professional dispute, you want the end result to be supportable and reasonable.

It’s important to keep in mind that the appraiser you select knows little to nothing about your business until you begin to communicate and share information. The first half of the process will be a fact-finding mission, with the goal of providing sufficient financial data and other key information to the appraiser, while they suggest to you the best approaches and methodologies to take.

This level of communication and data flow will also present the valuation professional with a better understanding of the larger picture, whether that involves a critical transaction you are trying to close, the settlement of a divorce or partial buyout, or providing you with a value that can be presented to potential purchasers in the open marketplace.

A third-party valuation is independent and unbiased; however, this is the chance to present your individual perspective as a business owner so the appraiser understands what you’re trying to accomplish, and certain variables that only you may be aware of that could influence the outcome. Trust that the professional working with you will understand how best to consider all the potential adjustments and make reasonable decisions in the overall scheme of their analysis.

As a result of these meaningful communications, the second part of the valuation, which involves the appraiser’s review, research, analysis, and report writing, will result in a thoroughly examined and reliable outcome. It likely will also end up being more in line with your expectations. No business owner wants to go through the effort of working with external consultants and service providers only to end up with surprising, undesirable results.

Many business owners might believe the value of their company is more than what the market might dictate; that’s just human nature. However, the more the appraiser understands your experience and specific history working every day as the head of the company, the more likely the final value opinion will be in line with your expectations.

Before you commit to a specific appraisal professional, spend time discussing these kinds of topics so you feel comfortable that you will be working with a well-balanced firm that understands the important factors that go into a business valuation.

Tags: valuation, business appraisers, business owners, small business

You Have Options When Selling Your Business

Posted by Business Valuation Specialists LLC on Mar 27, 2023 7:30:00 AM

Small Business Sale Options Valuation

As a business owner, there will come a time when you begin to consider selling the company, hopefully after years of growth and prosperity. Whether you are eyeing retirement or thinking of shifting your career path, you will need to determine the ideal exit strategy for the company and explore the options available to you. Here are a few to think about:

Internal Sale to Key Employees

You have likely built lasting relationships with some of your top personnel who have been loyal over the years and helped you build the business up. An internal company sale to employees who are ready to take on the additional responsibilities of ownership will avoid the extended time and risks of an open market transaction. This will also instill confidence in all your workers that you intend to keep things as consistent as possible during this transition and in the years to come.

The downside is that you may need to develop an affordable seller financing package that allows the employees to pay you over an extended period of time.

Engage with a Business Broker

You should be able to research the market and find a couple of business brokers who specialize in selling companies to other third parties in your industry. This process will probably involve considerable time and expense, however, the end result may be worth it. Make sure you conduct a thorough background check and interview process before committing to a company as you will be heavily reliant on their ability to successfully complete a sale which may take several months or even a year or more to finalize.

Develop your own Marketing Plan and Sale Strategy

If you have a lot of industry contacts and feel confident that you can manage the process independently, consider taking the time to develop a strategy to market your business solo. If you strongly believe you have the knowledge and experience, as well as the time, and understand the risks involved in this kind of venture, you might be best served to sell the company yourself, relying on the fact that no one knows your business better than you.

You should have your accountant, attorney, and any other key advisors involved in the process to mitigate risk and avoid miscommunicating information to potential buyers. This option has the most upside potential but higher downside concerns given the independent nature of the transaction.

In summary, this decision will be one of the most important ones in your life so take plenty of time to consider your options and seek advice as needed.

Tags: valuation, preparing for a business sale, small business

Small Business Goals: Easy-to-Manage Online Presence Across Platforms

Posted by Business Valuation Specialists LLC on Jul 18, 2022 7:30:00 AM

Business Valuation Appraisals Online Presence

One of the biggest challenges for many small business owners is effective marketing which ultimately drives sales volume. Whether you’re a local company that tends to rely on word-of-mouth referrals or a nationwide operation looking to grow, one of the most effective tools available to you is your online presence.

There was a time when folks used to look in the newspaper or phonebook to locate what they were looking for. Those days are long gone. Potential new clients who want to utilize your service or purchase the type of goods you provide, will almost always turn to an online search engine first and type in a phrase or handful of keywords to describe what they need to find. For this reason, every small business today needs an effective and attractive online presence, where new content is being actively posted and updated, to maximize the benefits of this powerful marketing tool.

Consider engaging with a company that combines a web-building content management system (“CMS”) with a customer relationship management (CRM) system. Doing so can be very beneficial for a small business because you can aggregate web design, development, data tracking, lead generation, eCommerce functionality, and even social media marketing efforts saving you time and money in the long run. Many have the ability to add customized code and APIs so you can make your brand stand out. The best ones offer robust reporting abilities giving you a real-time look at your online performance across platforms and allowing you to make adjustments quickly and easily.

Look internally to your employees to determine if any may have the skills required to assist in developing or upgrading your website using a CMS or can oversee and manage the data coming in from a CRM. Keeping these functions in-house will save you money and afford you more control in the long run. If you need to engage an external business be aware the cost of using outside services can be significant. Budgeting and planning will be vital throughout the process as well as gleaning a clear understanding of the overall cost vs. annual revenue growth projections.

There are many key decisions small business owners make every day. When it comes to creating the optimal platform to maximize sales, the development of an attractive, effective online digital presence combined with a good quality CRM can be one of the most important ones, offering long-term growth opportunities that fit your goals and allow you to make the best investment decisions impacting the future success of your business.

Tags: valuation, business appraisal services, small business, online presence

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

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

Changes to Patents and How it Impacts Valuing Intellectual Property

Posted by Business Valuation Specialists LLC on Feb 8, 2017 9:23:00 AM

valuing intellectual property IP.jpg

Whichever side of the debate you're on, we have a new president in our country, and that will impact the way we do business. But how will President Trump's policies impact valuing intellectual property? Will he support tighter patent enforcement or reduce the value of intellectual property? Though it will be difficult to determine until these changes go into effect, we can take a look at the expected impacts his administration may have on these aspects of the valuation of a company with strong intellectual property assets.

Changes to Patents and How it Impacts Valuing Intellectual Property

When it comes to intellectual property and patents, many companies don't realize the strong impact it can have on the valuation of a company. But part of the impact involves the current administration's effect on how patent law is enforced. How will President Trump's policies impact your business' value?

Though there haven't really been any strong statements from the President on his views of intellectual property, we can take hints from those around him to get an idea of how things may shape up. Here are a few things to consider for how the current administration may go:

  • Vice President Pence was on a House of Representatives subcommittee on intellectual property. His positions during that time suggest he would approve of the reversal of many of the patent reforms proposed during the Obama administration.
  • Donald Trump Jr. is known for having worked with a company that took action in a patent enforcement campaign, suggesting that he would support strong patent enforcement and pass that viewpoint on to his father.
  • One of President Trump's uncle was a MIT professor and inventor who had 23 patents to his name. Seeing that level of success would undoubtedly impact Trump's views of intellectual property.
  • As Chief Strategist to the President, Steve Bannon's views will strongly influence President Trump's intellectual property policies, including his push against patent reforms during the Obama administration.
  • President Trump's current pick for Secretary of Commerce is Wilbur Ross, who has written in the past about reducing the theft of intellectual property by China. Paired with Trump's focus on raising import tariffs, this could bolster U.S.patent rights.

But what about the man himself? President Trump has risen to his current position through business savvy, branding and the use of trademarks, so it's expected that he'll strongly enforce patent laws. That being said, the conservative backing that put him into office doesn't tend to approve of spurious lawsuits, so there may be backlash against companies that appear to be patent trolls that are viewed as hampering genuine business innovation.

It can be presumed that these influences will create the environment for strong enforcement of intellectual property rights. This improves the value of innovation and intellectual property in a business. By protecting those rights, there is less chance that a business will lose money to a competitor who may have stolen their concepts.

Though these changes may or may not come to pass, having an idea of how valuing intellectual property will change over the next four years can help you anticipate the impacts of the new administration.

Tags: valuation, intellectual property, IP

Business Appraisals Help Fine Tune Asking Prices When Selling a Business

Posted by Business Valuation Specialists LLC on Jan 18, 2017 3:04:00 PM

asking price when selling a business.jpg

When you're selling a business, you've got a lot of different things to worry about. Is everything operating at its best so that you can get a good price? Are there any areas you need to work on? Is your asking price fair, too high or too low? Will you be able to sell your company as it is and see enough profit to set you up for your future plans? When it all comes down to it, your asking price can make a big difference between a successful sale that sees you into your future opportunities and a failure that sits on the market too long or sells for too low a price. Fortunately, the valuation of a company isn't something you need to worry about in the process. Here's why a business appraisal can help ensure you're asking the right price when you sell your company.

How a Business Appraisal Helps You Fine Tune Your Asking Price When Selling a Business

As you're going through the process of getting your business ready to sell, do you know what aspects of your business are in good shape and which ones will require work before it's acceptable to a prospective purchaser? What will need to go into your asking price to ensure you're getting what your company is worth? These questions are fairly common when a business owner is preparing to sell, and they are often best answered by a professional business appraisal specialist.

A business appraiser will look at a number of areas in your business. Part of that includes the financial paperwork for your company, including financial statements, tax returns and similar information. They may make adjustments to the report to convey more accurate information to the potential purchaser, such as removing significant income or expenses that can cause inaccurate spikes in the financial statements.

Another area that will be explored is the industry. The appraisal specialist will look at similar companies, in terms of discretionary earnings, company transactions, gross revenue or public companies of a similar nature. They'll then adjust the value of those companies based on the differences between the two to help determine your company's value in the marketplace. This allows for adjustment when a market is very new or experiencing strong growth that you want to capitalize on.

By getting a business appraisal before selling a business, you can quickly learn exactly what needs work in your business and can be certain that you're getting at least what it's worth. But don't settle for just any business appraisals company. You'll want one that has experience in your industry and can provide a business valuations specialist who is certified and can provide you with a valuation report based on standardized methodologies.

Tags: selling a business, valuation, business for sale

How Getting the Value of a Business Can Help Before a Sale

Posted by Business Valuation Specialists LLC on Feb 24, 2016 12:30:00 PM

value_of_a_business

You may know that getting the value of a business is important before you sell the business. But did you know that taking a step back and getting the value of the business taken while you are still formulating your exit strategy can help you earn more when you go to sell? Learn why we recommend having a company valuation done in advance of a business sale. 

How a Business Appraisal Can Help in a Sale 

During an appraisal, the business appraiser will typically review the cash flow of your business along with the market value for businesses like yours. It can be very helpful to see how you "stack up" to your biggest competitors and learn what a typical buyer might be willing to pay for your small business. This information can also help you make the right moves before you officially announce the sale. 

When you know the value of your business vis a vis competitors, as well as your cash flows, you can look at things from a buyer's perspective. Those improvements you have been putting off making while you work on your exit strategy? If you make them before you go to sell the business, and they increase your market position relative to competitors, suddenly they may seem like a bigger priority. 

If the appraiser's valuation suggests that market demand in your niche will fluctuate, it may make sense to postpone your exit or to speed it up and sell while the market demand is high. For example, software as a service is a hot niche right now. If you want to sell a software as a service company, now would be a good time. 

If your niche were low in demand right now, you could certainly plan to sell the business but might not be able to earn what you anticipated when you originally dreamt of selling. Knowing that demand is lower than hoped for, you could then determine whether business improvements could help you raise the company valuation or whether you would spend more on making business improvements than you could earn back in a sale. 

An appraiser will bring outside perspective and nuance to the business valuations process that you, as the owner, are simply unable to have. The valuation you receive in the appraisal process can help you better evaluate unexpected things that tend to arise during the sales process. 

If you are willing to continue working for a few years and you can take actionable steps to improve your business cash flow and reduce liabilities, using the appraisal report as a guide, you can increase the business cash flow and your chance of a profitable sale. 

When it comes to small business appraisals, it is vital that you select a business valuation firm that is familar with your industry, employs accredited business appraisal professionals, and is trustworthy. After all, when you are basing business improvements on the recommendations of the appraisal, you need to feel trust and confidence that you are doing the right thing. 

If you are working on your exit strategy and would like a business valuation to prepare you for the process of selling your small business, Business Valuation Specialists is here to help. Contact us to learn more about small business appraisals or to find out the value of your company. 

Tags: value of a business, valuation

Performing Business Valuations on Unique Business Models

Posted by Business Valuation Specialists LLC on Dec 9, 2015 11:00:00 AM

business-valuations

If you're been following our blog for a while, you know that we talk about different methods of company valuation or approaches to business appraisals. But how do business valuations go when they're being applied to a company with a unique business model? In recent years, we've seen everything from companies that are owned cooperatively, provide a certain amount of their sales to charitable organizations or mainly use independent contractors to provide global services from a comparably small office and website. In this post, we'll take a look at Uber, the car sharing service and how a business valuation would be performed on startups where the business is based on an idea and the company has no real track record.

Business Valuations for Unique Business Models

When a business valuation is performed, it's often based on existing figures, such as past income or the sale prices of similar companies. When a business model takes an approach that doesn't fit existing models, it can make the valuation process more difficult. One of the most important sources of information during this time is a good grasp of what exactly the company does. A company valuation of the car and transportation company Uber was originally at $6 billion based on the company being limited to urban areas as a car service.

Problems With the Uber Valuation

But someone more familiar with the company took the appraiser to task because the appraiser didn't have a good grasp of the company's potential. It was argued that the business was able to move out into the suburbs, provided logistics and transportation solutions in addition to car services and was developing global networking benefits with several other companies. After taking these expansions on the initial concept into account, the appraiser raised the valuation to $54 billion. How can there be that much difference between valuation? The business appraiser put up a form to allow other valuators to calculate their own value for Uber, and came up with values between under $1 billion to over $100 billion. These differences depend very strongly on how much information the valuator has available to document their methodology. 

How Valuation Specialists Learn from the Uber Valuation

Though most of our customers are under $20 million in valuation, some of the same concepts apply as was used in the Uber valuation. Though a well-qualified valuation specialist knows what to look for in a company to provide a solid valuation for a company, there are some details that make the difference between an average valuation and an extremely accurate one. Knowing exactly what your business does, all the industries it intersects with and its potential for growth provides additional information when working with a company that has an unusual business model or details the business appraiser hasn't worked with in the past.  By ensuring that you've provided the best possible information with the most detail available, you're more likely to receive a much more accurate valuation. 

Whether you use a traditional or unique business model, getting the valuation of a company helps you avoid unnecessary risk or leaving money at the negotiating table in many different situations. If you need to have quality business valuations performed but haven't found the right company to get the job done, please contact us. At Business Valuation Specialists, we know a quality business valuation can mean the difference between expanding a successful company and closing the doors on a bankrupt business.

Tags: business valuations, valuation

Boosting the Valuation of your Company

Posted by Business Valuation Specialists LLC on Sep 21, 2015 9:30:00 AM

You never want to get too comfortable when you own a business because what is working today may not work tomorrow. Companies that are performing poorly have a lot of room for improvement. Companies that are doing well can do better. To get a true picture of how well or how poorly your company is performing, you should get a valuation of your company.

Business appraisals are done for a variety of reasons. They are often done as a precursor to a sale. They are done to value estates, for court proceedings, and to determine how assets will be distributed in a divorce. Another reason why you might want to have a business appraisal is to identify weaknesses in your business that are keeping you from getting a higher business valuation.

If you want your next business appraisal to be higher than your last business appraisal, you may need to make some changes. Be smarter, work harder, and try some of the following suggestions that can increase the valuation of a company.

Effective Use of Assets

You can increase the value of your business by making smarter decisions on how you spend your capital or utilize your physical assets. Business owners need to decide how many employees to hire and how much to pay them. They have to decide which vendors to use and when to upgrade the company's computers. Is it better to purchase a truck to make deliveries or to pay for a third-party carrier to ship your product?  Better have extra capacity that isn't being used or sell off excess machines in an equipment auction to generate extra cash.

A business that chooses to automate may have a large capital expenditure, but by investing in new machinery and equipment, the business could reduce its operating costs. If you can get a machine that does the work of ten people, you could reduce your workforce. Machines don't demand a $15 minimum wage and you don't have to provide them with expensive health insurance.

The smart allocation of assets can lead to greater profits and greater profits can lead to higher business valuations.

Increasing Productivity

Productivity is a measure of efficiency. When you are able to generate the same output at a lower cost, the cost savings go right to the bottom line. Productivity can be increased in a number of different ways.

  • By employing a higher-skilled and better trained workforce
  • By simplifying a process to complete a task
  • By investing in modern machinery and equipment
  • By cutting waste and recycling materials

Expanding your Product Line

You want to expand your customer base to increase sales. One way to do that is to expand the number of products you offer. For a long-time, Coca-Cola only sold one product. Today, as people are becoming more health conscious, the Atlanta-based beverage company sells more than 500 brands.

Forming Partnerships

Strategic partnerships can lead to lower costs, additional business and more rapid growth. A hotel could partner with a restaurant to offer home-cooked meals and save on the cost of providing room service.  Everybody likes Starbucks coffee, right? Well, Starbucks has expanded its distribution channels and grown over the years by putting coffee shops in bookstores, providing the coffee for airlines, and selling its coffee in grocery stores. Lower costs, more sales, and faster growth, all add up to higher business appraisals.

Focusing on the Most Profitable Areas of Business

Owners sometimes make the mistake of trying to be all-things to all-people and end up diluting their profit margins. Improve your company's bottom line by getting rid of low-profit-margin items and filling your store with high-profit-margin items. The only trick here is to make sure that you have a strong demand for the high-profit-margin items you sell.

Tags: valuation