Information about Business Valuations
So if you are a business owner you may have arrived at this page because you are asking yourself “I wonder what my business is worth”. You may be asking yourself that question for many different reasons. It is important to note that when most sellers ask what is my business worth they are really referring to price not value. Price, very simply put is what the object of attention sold for…..in other words the price that was paid. It may have been negotiated and it may have met the seller’s and buyer’s perception of value when the two perceptions coincided. Frequently the seller’s opinion of value is different than the price.
The question “what is my business worth” should prompt the valuation professional to ask “why do you want to know what your business is worth”? The answer is critical in determining how to approach the project correctly as there are many different value definitions (standards of value) that are based on the underlying purpose. For example: Is the valuation needed for adversarial purposes such as partnership dispute or divorce? Is it needed for a friendly partner buyout? Are you thinking of selling? Perhaps you are trying to obtain capital for growth?
In most non adversarial cases the standard of value is “Fair Market Value”. By definition that is “The price at which the business would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.” It is likely that the value will have to be defended by explaining to a buyer, banker or partner how you arrived at the value. Having a valuation gives you the ability to defend and explain the value and when considering selling, this often leads to a higher selling price.
Valuing a business is both science and art. It is a detailed, tedious and painstaking process and many factors have to be considered. Financial performance, tangible asset value, lease or real property conditions, revenue concentration issues, economic conditions, industry trends, local market place trends, historical and future capex, various risks, strengths, weaknesses and threats must be identified and / or considered.
Arizona Business Sales and Acquisitions can assist both buyers and sellers in this very important process of business valuation and we offer two valuations that are for non-legal purposes.
Market Pricing Report – This is a restricted use valuation report that is intended for the “small main street business” with sales of less than $500,000.00. The report is intended for “asset sales and financial buyers”. It is suggested that this opinion of value be used for businesses such as janitorial services, landscaping, hair salons, printing/graphics firms, dry cleaners, restaurants, bars, auto repair and misc. retail. The report is approximately 15 pages and provides only a brief explanation of how the conclusion of value was arrived at. The approaches used will be the market approach and if subject financial statements permit the income approach will also be utilized. The report will contain several exhibits. Cost – $850.00 to $1,200.00.
Value Analysis – This is a restricted use valuation designed specifically for the “main street” company with sales of $2,000,000.00 or less. The report is intended for “asset sale and financial buyers”. It is approximately 20-30 pages providing more detail about how the conclusion of value was arrived at. The approaches used will be the market approach and if the subject financial statements permit the income approach will also be utilized. More time will be spent with the balance sheet and a forecast model may be developed. The report will contain many exhibits including: reported income and expense statement, adjusted income and expense statements, reported balance sheets, adjusted balance sheets, company description, comparable sales, forecast model, buildup rate, more detailed valuation conclusion and more. Cost- $1,500.00 to $2,000.00
Valuations for legal purposes – If you are interested in or must get your business appraisal completed for legal purposes such as divorce, gifting, partnership dispute etc., we will be happy to refer you to one of our certified business appraisers with strong credentials and experience with the IRS or courtroom environments. We must inform you that most adversarial situations demand a very high level of experience and built in contingencies for witness testimony and require a great deal of time and this makes them very expensive. It is not unusual under these conditions to expect fees beginning at $5,000 going much, much higher.
Please call us at 623-295-9620 for a no obligation and confidential discussion.