KNOW WHAT YOUR BUSINESS IS WORTH

Many types of events could trigger a need for a business valuation. Whenever major changes occur within your business, you should check with your accountant or lawyer to find out if a valuation is recommended.

You may need a valuation if you are:

• buying or selling a business
• seeking outside investors
• seeking a business loan
• planning for an initial public offering of stock
• performing estate or gift planning that involves company stock
• dissolving a partnership
• getting a divorce
• disputing the conclusions of an IRS audit

THE VALUATION PROCESS

The procedure for valuing a business depends on the reason for developing the business valuation.

For the purposes of buying or selling, business valuation is a mix of art and science. The bottom line is that people determine value. In other words, a business is worth what a willing buyer will pay for it.

A business can have all kinds of value to its owner. It has sentimental value based on the owner’s sweat equity and inspiration. It has cost value based on the money invested into the purchase or start-up costs, along with money invested over the years for improvements. As significant as these values may be to the owner, they have little worth on the market.

The value of a business on the market is based on “Fair Market Value” – the price at which a willing seller will sell and a willing purchaser will buy, neither under abnormal pressure to act. Buying or selling a business can be a time-consuming endeavor if a “Fair Market Value” has not been established prior to the business going on the market. By establishing a fair price before the business goes on the market, both sides can know a reasonable place to start negotiations.

There are ways of estimating a fair price. And not one of them is perfect. Most valuations are based on a multiple of cash flow, and there are accepted rules of thumb for all kinds of businesses, in all types of industries.

Keep in mind, however, that the numbers are not the only factor to consider. Some businesses are more in demand than others. Economic conditions change. And frequently intangible assets are of greater value than tangible ones.

In addition to an accurate valuation, a major consideration for prospective buyers is the projected cash flow and profitability of a business, also known as “Owner’s Discretionary Income.” Because most small businesses calculate income in such a way that income taxes are minimized, its true profitability can be difficult to understand. Many companies operate at low net incomes (or even negative net incomes), while they may actually be highly profitable. Determining the discretionary cash flow of a business can help a potential buyer understand how much cash will be available for paying for the business and generating profit on an annual basis. Calculate your Owner’s Discretionary Income >>

THE BOTTOM LINE MANAGEMENT ADVANTAGE

BLM has been providing business valuation services for over 25 years. Your business valuation – or Opinion of Value – will be developed by a qualified professional with experience in over 200 industries and a finger on the pulse of today’s market.

When working with BLM, you can expect:

1. Attentiveness. Your business is unique; your business valuation should be too. We will use the most appropriate system to determine the “Fair Market Value” of your specific business at a specific time. Our approach relies on the accuracy of the financial, historical and other information received from the business owner, which allows you to have detailed input in our process. Your Opinion of Value will run about four to six pages. Typically, a financial spreadsheet will be included to show you how the analysis was conducted.
2. Timeliness. Typically, Opinions of Value can be performed in five to seven days following the collection of data.
3. Confidentiality. It isn’t necessary for us to meet at your business nor is it necessary to speak with your employees, customers, clients, vendors or attorney. It is up to you who is involved with the valuation. If we are unable to speak with your accountant, however, you may need to have him or her answer certain questions for you regarding the financials of the business.
4. Objectivity. Many attorneys and accountants entrust us to develop a business valuation for their clients. While they may have the ability to perform the service for their clients, they know that an independent Opinion of Value will hold more merit to an outside party, such as a buyer or an adversary in court.

If, like many business owners, you have most of your net worth invested in your business, shouldn’t you understand its true value? Contact us to discuss your business valuation today.