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Business Valuations
About our Business Valuations Division
Business valuations are performed by a variety of professionals. Certified Public Accountants possess certain characteristics that make us uniquely qualified to perform business valuations because of our extensive knowledge about and experience with accounting, financial statement analysis, and tax issues related to valuation.
Today, business owners, bankers, and attorneys are increasingly realizing that businesses have values in excess of their tangible assets. The applications of business valuations are numerous, including: mergers, acquisitions, spin-offs, allocation of acquisition prices, adequacy of life insurance, liquidation or reorganization of a business, litigation, buy-sell agreements, divorce, minority shareholder interests, compensatory damage cases, financing, insurance claims, employee stock ownership plans, estate and gift taxes, incentive stock option considerations, charitable contributions, return on investment, government actions, etc.
Contact a Business Valuation Specialist Today!
Why is Business Valuation Necessary?
Business Interests Often Represent a Significant Asset
Business valuations are performed because ownership interests in privately held companies often represent a significant portion of one's estate and or portfolio. The value, or worth of an interest in a privately held company, as opposed to stock in a public company, is usually unknown because there is no active market to sell or trade that interest from which to ascertain or approximate value. Value determinations are most commonly needed to calculate estate tax upon death, split up family assets in a divorce, or negotiate value in a purchase, sale or merger of a business enterprise. Besides these, there are many other reasons why a holder of an interest in a privately held company might require a business valuation. The more common ones are:
- Adequacy of Life Insurance
- Buy/Sell Agreements
- Charitable Contributions
- Disruption of a Business
- Dissenting Shareholder Actions
- Eminent Domain
- Employee Stock Ownership Plans (ESOPs)
- Gifting Programs
- Gift Taxes
- Initial Public Offerings (IPOs)
- Obtaining Financing
- Partner Disputes
- Split-ups/Spin-offs
- Succession Planning
A Value Added Service
Possibly one of the best reasons for obtaining a business valuation is to use it as a management tool. A prime objective for every business enterprise, large or small, is to improve and maximize its value to the owners. This is a necessary business requirement in order to justify the investment of time and, more particularly, capital. A properly prepared business valuation provides management with insightful information that helps them identify company strengths and weaknesses that affect value, allowing management to more effectively focus their energies in places that really count. A business valuation, prepared periodically, also serves as a measurement tool that helps owners assess overall success and management effectiveness.
How Can a Professional Valuation Consultant Help You?
Many business owners believe that value of their business is net profit, or gross sales, multiplied by some industry rule of thumb. "This is simply not the case. In fact, the application of an industry rule of thumb formula often results in a value determination that differs greatly from the actual value that could be determined by a qualified business valuation professional.
Accurate Value Determination
The result of an inaccurate value determination, regardless of whether it is high or low, generally leads to undesirable consequences. For instance, if the value is too high, estate taxes will be too high; savvy investors or prospective buyers will usually disregard a value that appears too high. If the value is too low, you can be sure savvy investors or prospective buyers will recognize it and take advantage. Likewise, if you are on the other side of the dispute in a dissenting shareholder action or divorce, you certainly want to know you are receiving a fair value for your interest.
Careful Analysis
Determining the true value of a business enterprise requires a careful analysis of two primary components that make up value; tangible assets such as real estate, machinery, and furniture used by the business and various intangible assets such as the business goodwill. Other intangible assets might include customer lists, trademarks, copyrights, distribution rights, a superior management team, non-compete agreements, physical location, special processes, and name recognition. Quite often, the value of a company's intangible assets is much greater than the tangible assets. Valuing intangibles, however, is where one needs the services of a qualified business valuation professional; it requires a careful analysis of many aspects of a business enterprise and requires skills acquired through specialized training and experience.
Understanding the Business
To properly value intangibles, the valuator must acquire a thorough understanding of every aspect of the enterprise dynamics, including management capabilities, company strengths, weaknesses and vulnerabilities, the competitive environment, overall expectations for the marketplace, and future economic prospects for the industry. All of these elements affect the risk of an ownership interest in a particular enterprise, and risk affects value. Additionally, the valuator must analyze the financial health of the enterprise and assess its future profit potential. Generally, profitability translates into intangible value and/or goodwill. As such, a key part of the valuator's analysis will focus on determining a company's true profitability. Common adjustments might include adding back to profits amount for excess officers' compensation over and above the average for the industry, excessive depreciation on assets aggressively written-down, and non-recurring charges to expense, to name a few.
Sorting Through a complex process
After a thorough analysis of the company's dynamics and financial health, the valuator must select the most appropriate methodology from among the many utilized by the valuation industry and apply a series of calculations and formulas to arrive at the ultimate conclusion of value. Overall, the process is quite complex and time consuming, however, this is what is necessary to determine the true value of a business.
Contact a Business Valuation Specialist Today!
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