Business valuation is the process of organizing, assessing, and reporting on detailed financial data to determine the most accurate and defensible value of your business at a given moment in time. A critical intelligence tool, business valuations prepared by an accredited Valuation Analyst – as opposed to an automated valuation report generated by online tools – utilize a mix of objective and subjective assessments to deliver an in-depth analysis that connects the dots between all the various elements that impact your business value, growth trajectory, and projected profits.
Here’s a brief overview of the steps our accredited Valuation Analysts go through when working on a business valuation:
First, our Valuation Analyst determines the reason for the valuation.
The business valuation process begins by determining the purpose for the valuation because depending on what your need is, your accredited Valuation Analyst will need to perform different analyses. So, the first step is to ask the question, to what end are we performing the evaluation? Are you selling your business? Trying to secure financing for a loan? Succession planning? Estate & gift planning? Is it an annual ESOP evaluation? Business valuation is not one-size-fits-all, rather, it is specific to your reason for the valuation itself.
Second, our Valuation Analyst outlines the unique characteristics of your business.
Before we start to analyze your business financials, we collect insight into all the factors that make your business what is it. This involves looking at underlying factors like your customer mix, intellectual property such as reputation and trademarks, current market conditions as well as market forecasts, and the state of your specific industry. All these factors help bring context to your company, financial trajectory, and valuation framework.
Next, our Valuation Analyst analyzes your financials.
This is where all the deep financial and operational analysis comes into play. We look at all your financial documents to analyze your history, look at changes in performance over time, and model future growth based on a wide variety of factors. We also look at your operational headwinds and tailwinds, as well as anything that might affect your forward valuation projections.
Then, our Valuation Analyst selects the appropriate valuation method(s).
There are many business valuation methods to choose from, each of varying complexity. The reason you are seeking a valuation determines the type. For example, if you are selling your business, you want to achieve the highest valuation possible. If acquiring, you might prefer a more conservative appraisal method for your target business. Typically, there are three main approaches when it comes to valuing a company: Asset, Income, and Market approaches. Each approach then has multiple methods valuation analysts can utilize.
- Asset Approach: Methods under this approach focus on the Company’s net asset value, the fair market value of total assets minus total liabilities, to arrive at an indicated enterprise value.
- Income Approach: With these methods, we utilize historical or projected income streams to derive an indicated enterprise value.
- Market Approach: Market approach methods derive a Company’s enterprise value based on the selling price of similar privately held and publicly traded companies.
Finally, our Valuation Analyst uses the data to report on all aspects that determine the value of your business
At this point, we have run the numbers and can translate your business data into a detailed report that outlines your business value at a given moment in time, as well as all the elements that affect the valuation itself. With this, you’ll have an accurate, defensible valuation that you can use for planning and negotiation purposes.
So, there you have it, the basic 5 step process to a business valuation. Behind the scenes, there’s a much more involved process happening that your certified valuation analyst will walk you through specific to your unique business valuation report. To learn more, contact us today.