Understanding What Your Business is Worth
A business valuation or business appraisal helps a business owner determine the value, usually the fair market value, of a business.
What Factors Influence the Value of a Business?
Unlike real estate, which is almost solely determined by 2 factors: comparables and condition, a business is much more complex and the value is not determined as quickly. There are numerous factors that influence the fair market value of a business. Here are some of them:
- Length of time in business
- Competition in the marketplace
- Market demand for this type business
- Trend of your business
- Industry growth
- Ease of duplication of the business
- Market niche
- Customer base
- Net profit level
- Owner’s discretionary cash flow
Determining the real value of a business requires specific details about the business. Often without detailed information, it is difficult to accurately pinpoint the true value of a business.
For example, without researching it would be easy to value a McDonald’s Franchise location and a Hardees’ Franchise location as having a similar value if their revenues were similar. Sadly, this valuation would be off by a factor of 10. This is where a valuation can help you determine the appropriate value for your unique business.
What is Required For a Business Valuation?
So, to accurately determine the value of your business, we will request specific information based on the reason you are requesting the business to be valued. Typical information requested for a valuation included the following:
- Financial Records (Profit and loss statements / tax returns for 3 years, Interim financials, last year’s balance sheet, account receivable aging report, etc)
- Company Assets and Real Estate list (List of assets included in sale, list of assets not on balance sheet, copies of leases and equipment list, appraisals on real estate, etc)
- Employee Related Information (employment contracts, organizational chart, copies of pensions or profit sharing plans, buy / sell agreement, employee benefits, etc)
- Contracts, Policies, Marketing (all insurance policies, brochures, ads, contracts for services, copies of patents, copyrights, trademarks or contracts of value)
Reasons to get a Business Valuation
- “Check up” on your retirement (every 3-5 years)
- Preparation for a loan
- Ownership Transfer / Sale of the business
- Litigation Support
- C-corp to S-corp conversion
- Estate and Gift Taxation
Types of Business Valuations
Depending on the reason you want the valuation will determine the type of valuation you will want to have done.
We offer the following types of business valuations:
- Broker’s Opinion of Value – A quick, easy, low cost report done by a business broker. Great for “checking up” on your business value.
- Business Valuation Report – Formal summary report used for non-litigation situations, like obtaining a loan or determining minority interest.
- Business Appraisal Report – Formal comprehensive report used for litigation support as well as review by third parties like the IRS.