Our Services
The central purpose of our services can be summed up succinctly: we help business owners sell their company
The Valuation
Am I receiving
a good price
for my company?
Fundamentally, only the market can decide on the value of a business. No matter what anyone tells you, there cannot be exact precision in this field. Valuation is about being in the right ballpark — it is better to be approximately right than precisely wrong.
Nevertheless, a detailed, methodical approach will be more accurate and give confidence to an owner when negotiations begin. It also confirms we are on the same page with our clients about the valuation range before we take the next step of marketing the company.
The process is a mixture of art and science. It includes performing a modified quality of earnings review that takes a deep dive into the financials and operations of your company. Beyond this, in all valuation methods, one must also look past the numbers and review the qualitative factors of a business.
There are three major, distinct valuation approaches. Variations exist within these categories, but they define the primary methods:
1. Sales Comparables
This technique uses transaction data from similar companies. If good data is available, this is an excellent approach because it is an accurate reflection of what the market is historically paying for similar businesses.
Challenges exist in evaluating comparables – most transactions are unique in some way and private sale data is not widely available. Adjustments must be made to account for both differences in the numbers between the comparable and the subject business as well as variances in the qualitative aspects of the companies.
Also, a transaction may be similar, but not recent enough to reflect a shift that has occurred in the marketplace. Nevertheless, if solid data is available, it is an accurate way to predict value.
2. Financial Analysis
A combination of various techniques falls under this heading. These include using discounted cash flow analysis and multiples of financial metrics. Key considerations include selecting the correct multiple or discount rate based on the condition of the business and the correct metric (EBITDA, for example) and making common sense adjustments that can be understood by buyers.
Also qualitative considerations may have an important effect on the multiple and must be evaluated. Some examples include competitive environment, geographic location and regulatory changes.
3. Asset Analysis
The value of equipment, real estate, leases and other assets can have a significant impact on the overall value of a company. Their present condition is also an important consideration. Analysis of the balance sheet is always a component of any complete valuation process.
Care must be taken to understand the difference between the book value of an asset and its current fair market value. At times, a professional appraisal firm may be required for specific specialty assets.
A Final Word
No one methodology or approach is exclusively superior. A seasoned professional must be willing to look at a company from multiple angles to obtain an accurate valuation, much in the same way that an architect must draw in three dimensions to produce a realistic portrayal of a building. There is no substitute for taking the time to understand what drives value in a business, what keeps its customers returning and how it maintains those advantages in the marketplace.
The Valuation
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