Valuation: Getting the Right Price For Your Business
Value is related to risk and to the ability of the business to generate an income stream that is comfortable for the buyer. The value of a business depends on the needs and perspectives of each individual buyer.
To accurately assess the value of your business, you and your broker will start with these basic steps:
Review and evaluate
Identify factors that can
impact future earnings
impact future earnings
Select the appropriate
Calculate and apply
external factor discounts
external factor discounts
The Valuation Process
At GBB we are specialists in selling businesses, our combined team had decades of experience in business sales. This experience is important when it comes to valuing a business with the intent to sell your company. Where we differ from companies that only specialize in business appraisals is that we understand the buyer’s needs. We consult our growing database of accredited buyers based upon our valuation. This is our edge as it is critical to know where to price your business and based on our in-house profiling, who to present the opportunity to, in order to engage into negotiations quickly.
At GBB, the majority of our in-house valuations are prepared for individuals or companies who wish to know the worth of their company for the purpose of selling it. We provide the groundwork directly, assisting with data gathering, questionnaires, financial statement normalization, and the other tasks involved in appraising a business, and then jointly work with the company to finalize the appraisal.
Whether you would like a business valuation to assist you in preparing your company for sale, we can help you, and with our network of global contacts and database of buyers, for rates lower than our competition.
We advise you to get a professional valuation. By valuing your company, you greatly increase the chances of attracting serious buyers and often at a higher value.
The Importance of Valuing Your Business
- Getting a professional business valuation shows buyers that you are serious about selling your company. Many buyers quickly tire of sellers who are testing the waters and are not prepared with accurate information.
- Obtaining a valuation often increases the selling price of your company. Because the science of business valuation is likely a confusing subject to most buyers, having either an independent third party or an experienced professional value your company makes the buyer feel more comfortable in paying your asking price.
- A valuation will increase the likelihood that it will sell. The reason for many failed negotiations relate to company’s financial statements. By getting your business valued, you have performed financial due diligence in advance, which during the process can uncover problems that would potentially put an end to negotiations during due diligence. We are here to assist you if we find any potential problems we feel are detrimental to the ability to attract the right buyer at the right price and give you the ability to work on them before placing your company up for sale.
- More often than not this equates to a faster sell as companies that are prepared for the sale and have had their business valued sends the message to the buyer that the information needed for due diligence is not only readily available but is accurate and current. This often shortens not only the length of due diligence, but also makes negotiations run smoother and quicker.
Steps in Business Valuations
It is necessary to first obtain an in-depth understanding of your business and industry before beginning any valuation assignment. We conduct in-depth interviews with you to understand the nuances of your business – discussing staffing, your location, the value of your equipment, competition, financial trends, availability of information, and more.
Financial statements are the basis of nearly all business Valuations. Because most valuations depend on some form of comparison, whether it is a comparable transaction or using a multiple, your financial statements must be “normalized” so consistent results are obtained. Financial statement “normalization” involves normalizing either excessive or underreported expenses or revenues in your business to enable us to compare and give an accurate valuation.
While there are three primary methods of valuing a business, there are many variations of each method. Depending on the industry, the availability of information, the time available to perform the valuation, and the purpose, the proper methods and weighting of methods must be chosen. For example, if a service business is being valued with the intent to sell, then it is likely that a multiple of discretionary earnings be used. Methods based on the value of hard assets would not be used because the business is not asset-intensive. They may be used, however, for validation purposes. If comparable transactions are not available, then the valuator may have to choose a variety of income approach methods.
Applying the business valuation methods chosen
Once your financial statements have been prepared and the methods have been chosen, then the individual methods must be performed, resulting in either a specific value or a range of values for each method used. By using more than one method, the valuation is validated and can be defended, whether to a buyer or a professional, such as an attorney or accountant.
Reaching the value conclusion
After the individual methods are applied, the valuator must review each individual conclusion and apply proper weighting to reach an overall specific value or range of values. The value of your business may also depend on other consideration, such as availability of financing and current market conditions. These additional factors are taken into consideration in preparing the final valuation.