When it comes to business valuation, the importance of working with a highly-skilled business broker cannot be stressed enough. The reason is simple. Business valuation is a complicated and challenging process that requires specific knowledge, insights and expertise, especially with all the turmoil occurring in the marketplace.
Interestingly, there is sufficient evidence that most businesses are priced incorrectly. Some brokers may have poor valuation skills, while others mistakenly assume that the market always sets the price, and there is no need to worry about getting the optimal value. In my experience, businesses that are valued correctly are more likely to be acquired. If you choose to partner with a business broker, he/she is facing the challenge of defending the higher value, as well as showing you HOW he/she is going to defend it.
So, how do we define business value? Simply put, it’s the value that the broker can defend through at least two standards of measure. Oftentimes, price differs from value. The benefits of ownership are generally realized over a long period of time. Therefore, there are a lot of factors to consider when conducting business valuation. An estimate of a value involves a solid understanding of economic trends, governmental controls and regulations, as well as environmental conditions that may influence the price. The above factors may impact the four elements of value:
- Demand – the desire or need for ownership
- Utility – the ability to satisfy future owner’s desires and needs
- Scarcity – the limited supply of competing businesses
- Transferability – the ease with which ownership rights are transferred.
It goes without saying that an accurate valuation requires meticulous collection of data. There is a lot to digest and a lot of crucial details to keep in mind. Besides, a seller who operates without a business advisor cannot maintain much-needed anonymity. He/she may lack legal knowledge or the critical marketing and negotiating skills to sell the business for the best price possible. Moreover, if the business owner tries to spread himself/herself too thin and take on too much responsibility, the operational aspect of the business may suffer and eventually result in loss of value. Therefore, the presence of a business advisor may expedite the sales process, make it easier to follow through, and get you the best price.
Here are just some of the challenges confronting potential sellers:
- Estimating accurate value prior to sale
- Taking the time to present all assets in the best light possible
- Making sure the company’s books and records are accurate and defendable
- Interviewing and qualifying buyers
Sellers who require a valuation but are NOT in need of a formal appraisal, can engage an experienced business broker who will perform what is known in the industry as a Broker’s Business Valuation, which provides many advantages. Oftentimes, market valuations prepared by a member of the Appraisal Institute, come in the form of a formal valuation or “appraisal”. In order to determine value, appraisers obtain the market and sales data directly from the brokerage community. Evidence suggests that a broker’s business valuation is a better and more cost effective alternative to formal appraisals and is typically preferred in sales transactions.
When conducting a business valuation, the broker visits the business, carefully examines its attributes, checks books and records, and assesses current market conditions and trends. In addition, the broker takes into account other businesses that are currently available in the market and similar to the business being evaluated.
What’s important is that sellers get an opinion based on the most recent and up-to-date market data. Furthermore, they may benefit from the broker’s extensive experience not only in that particular market, but also with the current overall market conditions. They will obtain all the crucial details they need. For example:
- The attributes / characteristics of the business
- Management / Leadership
- Historical and current market data
- Sales comparables and similar businesses for sale
- Condition of Tangible Assets
- Full financial disclosure
Let’s face it: Business valuations are a key part of every sales transaction. Joining efforts with a business advisor is a savvy and cost-effective way to obtain a current and accurate business valuation. Sellers rely on the broker’s expertise since the broker is fully immersed in the market and has access not only to historical data but also real-time information crucial to the valuation. Therefore, partnering with a competent professional to handle your transaction may not only save you time, but also have a profound impact on your bottom line.
To discuss your business valuation needs, please call 623-295-9620 or email firstname.lastname@example.org today. Let’s have a chat and see how we can move forward together. Looking forward to speaking with you!