Business Valuation Process
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Business Valuation Process

The business valuation is a combination of commonly used financial valuations methods, current market information and subjective assessments that require your input.  Using this information our valuation team leverages their insight into the current marketplace to determine your company’s potential value in the market place.  The purpose of the valuation drives the depth and breadth of the analysis required.

The 4 phases of the valuation process are shown below:

Phase 1.  Determine Appropriate Service

We will discuss …

  • Intended use of the valuation
  • Intended users
  • Business name, entity type, description, ownership, location
  • Financial highlights: revenue, earnings, trends, major assets & liabilities
  • Interest to value: 100% or fractional
  • (If fractional interest: capital structure, key shareholder agreement terms)
  • Appropriate standard of value
  • Appropriate date of valuation
  • Appropriate scope of analysis
  • Whether real estate or asset appraisals may be needed
  • Appropriate level of report
  • Deadline or desired time frame
  • Identify client: company, shareholder(s), attorney, CPA, bank, etc.
  • Access to business information
  • Unique circumstances to consider

With this information we will provide an appropriate engagement letter.

Phase 2.  Research and Analysis

We get to work and complete the market research and analysis of company data.

  • Compile requested business documents
  • Provide profile questions or schedule a management interview
  • Visit the business, review operations, conduct interviews
  • Review and synthesize business information
  • Research/analyze the industry and market in which the business operates, and obtain relevant industry data
  • Study economic conditions as of the valuation date
  • Analyze company financial data:
    • Enter 3-6 years of financial statement detail
    • Reformat financial information
    • Ask financial-related questions
    • Make various normalization adjustments
    • Analyze business financial condition, performance and trends
    • Calculate and examine relevant financial ratios
    • Compare financial performance to the industry
  • Identify and assess business value drivers and risk factors
  • Analyze management’s financial forecast and assumptions and/or develop a forecast
  • Resolve remaining questions regarding operations, outlook, market environment, financials,adjustments, assumptions
  • For minority interests, evaluate the risks, privileges and restrictions of the specific equity interest being valued

Phase 3. Apply Business Valuation Methods

We select valuation approaches and methods that are most likely to yield meaningful indications of value for the subject:

  • Market Approach:
    • Determine guideline company criteria
    • Using multiple sources, research and collect public and/or private guideline company business and transaction data
    • Analyze guideline company similarities and differences; refine
    • Statistically analyze and calculate appropriate market multiples: price/earnings, price/revenue, price/book value, etc.
    • Select best multiples and calculate value indications
  • Income Approach:
    • Select appropriate methods, which may include discounted cash flows, excess earnings, and one or more capitalization of earnings methods
    • Apply these methods using appropriate benefit streams and cost of capital, based on our analysis
  • Cost Approach:
    • Adjusted Book Value or Liquidation Value
    • May require separate real estate or equipment appraisals
  • Apply appropriate premiums and discounts to values indicated by the above methods. For minority interests, consider control and marketability attributes.
  • Reconcile the valuation method results and decide how much influence each should have in the final conclusion
  • Test the reasonableness of the value conclusion

Phase 4.  Produce and Deliver the Valuation Report

  • Write the report in the agreed upon format.
  • A full report presents all relevant facts, explains all analyses and procedures used, and discusses choices made and supporting evidence for conclusions.
  • Review, edit, proof-read and finalize the report
  • Deliver the report to client and review details as needed