Valuing Your Business

What Is My Business Worth?

A true test of accuracy and validity of any valuation is the price at which a company would willingly change hands in the marketplace.

The valuation of a privately owned company is both science and art.

Since no two companies are exactly alike even within the same industry, trade, or service, there is no one formula or method that is all inclusive.

VR uses a comprehensive, multi-method approach that considers relevant factors that are unique to a particular company including:

  • Company history and longevity.
  • Future economic outlook.
  • Tangible asset value.
  • Intangible asset value.
  • Industry ratios.

Also considered are factors such as historical net cash flow, probability of continued profitability, risk competition, technology changes, ownership transition training, owner non-compete and consulting agreements, as well as working capital requirements. There are many reasons to value a company. Whether it is for an anticipated acquisition or divesture, a partnership buy-sell agreement, stockholder concerns, martial dissolution, or estate planning, a professional valuation makes a world of difference. Since there are many reasons to value a company, there are many different levels of valuation services. From a simple target value for selling your company to a complex IRS-rated valuation, VR can handle the assignment internally or by working with independent third parties.

Professional Valuation Services

Upon gathering necessary financial information, a VR Consultant will determine the actual owner benefit or discretionary earnings. There are several methodologies used to value businesses including multiples of seller discretionary income, gross sales, equipment, net profit & inventory costs. Based upon previous market sales data, current sales trends and the one of the above methodologies, we will recommend a range that your business is worth. You may also hire an independent professional business appraiser who can provide an objective 3rd party valuation independent of the broker & client. A professional business valuation however is not an absolute~ there are many different opinions of what a business is worth. The real answer to it’s worth lies in what a buyer is willing to pay based on the perceived value that you have created and your broker has strategically presented.

We are happy to provide a completely FREE market analysis of your business. No cost, no obligation. It’s simple—we’re in the business to help you sell your business. Planning for the sale of your business, your exit strategy, is part of a good business plan. Understanding what it’s worth and what the market offers is part of that decision. Once you’ve made the decision to sell, we’ll take care of the rest. Simply contact us and one of our experts will arrange to meet with you to gain an understanding of your business model and secure some financial information. We will typically ask for the following:

  • Three years of detailed and current financial statements, balance sheets, and income tax returns.
  • List of furniture, fixtures, equipment, inventory, trade names, patents, and other assets to be transferred with the company.
  • Real property and equipment leases.
  • Any other contractual relationship of the business.
  • Other information which will affect company operation.

Remember, the more information available to us, the better we can present your business. From the data provided, we will do an analysis of prior business sales (similar to yours), current listings and market conditions to determine a value of what you can expect. We will also talk with you about our strategy for positioning your business and how we’ll market it to optimize the highest possible price. If you’ve contemplated selling your business or thinking about your future exit strategy, give us a call. Remember, it all starts with our FREE no cost analysis of your business.

Third Party Valuations

Often times business owners want a formal appraisal for any number of reasons – including a sale of business, partnership dispute, divorce, or to obtain financing. Larger businesses should always have a third party valuation completed prior to listing a business for sale, in order to present the buyer with independent and justified rationale for the business asking price. To fulfill this need, VR offers a suite of formal Third Party Valuation Services. Please contact your VR representative for pricing on the various third party valuation options.

Value Analysis

The Value Analysis is a restricted business valuation designed specifically for the “main street” business with sales of $1,000,000 or less. The report is intended for “asset sale, financial buyers” and is approximately 40 pages providing only a summary of how the valuation conclusion was determined. The basis of this valuation is discretionary cash flow, since most main street businesses are bought and sold on a multiple of cash flow. The value considers primarily historical and current financial performance and very little time is spent with the Balance Sheet.

The report contains the following (partial list of exhibits):

  • Historical Income Statement
  • Adjusted Cash Flow Statement
  • Comparable Sales (Market Approach)
  • Various Graphic Analyses
  • Summary Review of Each Valuation Approach
  • Valuation Conclusion and Justification

Limited Formal Valuation

The Limited Formal Valuation is a restricted business valuation intended for the standard small business with sales between $1,000,000 and $7,000,000. The report is intended for “asset sale, financial buyers” and is approximately 70 pages providing a detailed review of all aspects that were considered in determining the final valuation conclusion. The bulk of the report is financial analysis and the valuation conclusion is supported on much more detail. In addition to reviewing the company’s historical and projected earnings, the report also contains a detailed review of the Balance Sheet.

The report contains the following (partial list of exhibits):

  • Historical Income Statement
  • Adjusted Cash Flow Statement
  • Complete Financial Statement Analysis
  • Common Size Analysis
  • Ratio Analysis
  • Industry Analysis
  • Economic, Regional and Industry Analyses
  • Comparable Sales
  • Detailed Description of Each Valuation Approach Considered and Used
  • Valuation Conclusion and Justification
  • Discounted Future Cash Flow Analysis
  • What-If, Hypothetical Transaction
  • Proof of Valuation
  • Valuation Matrix

Merger & Acquisition Valuation

The Merger & Acquisition Valuation is a comprehensive business valuation for transactional purposes and is developed in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP). This is a stock valuation and is intended for the middle market business with annual revenues in excess of $5,000,000, businesses that are expected to sell for more than $1,000,000, strategic acquisitions of niche businesses, and generally any business with significant growth expected in the future. The basis of the valuation is focused on future earnings and the selection of guideline companies comes from both the private and public markets. This report is a completely customized report and the number of pages can range from 30 to 200 depending on the information that is used to support the conclusion.

IRS Revenue Ruling 59-60

A USPAP governed valuation developed for litigation focusing on US Court Reviews, Cited Court Precedents, and in-depth analysis and research of minority and marketability discounts. Intended for Estate Tax, Gift Tax, ESOP’s, Divorce, and any situation requiring litigation. This valuation is normally used when the value of the stock is in question (minority or majority interest).

* The Snapshot, Value Analysis and Limited Formal Valuation are considered “restricted use” appraisals. All valuation reports not including the IRS RR 59-60 are meant for business transactions only. If client requires a valuation for anything other than a business transaction, the IRS RR 59-60 report must be used.

Wonder no more.

Contact VR Business Brokers for a free, no-obligation estimate of the value of your business.

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