Business Valuation

Business valuation is the method used to establish the fair market value of a business owner’s interest in that business. It is frequently used to determine the proper course of action in disputes associated with gift and estate taxation, divorce proceedings, share of business purchase price, and business and legal disputes. An appropriately executed business valuation will assist business owners and senior management of mid-market companies in properly assessing the current market value of their company for financing or selling of the business.

Assembling an adequate business valuation is vital for the enduring success of any company. Contact one our business savvy CPAs for assistance in outlining and implementing you business valuation.

There are two main misconceptions about business valuation:

1. That you only need it when you require financing, refinancing or when selling your business.

When you need any type of financing or when selling your business you will need a comprehensive business valuation resource. But in almost all business transactions you will need a comprehensive financial understanding and a breakdown of the worth of that business. It can also help with the internal transition of ownership. Another is if the firm is made up of multiple owners there should be a buy-sell agreement accompanied with the proper life insurance for key executives. The life insurance should be structured so that the pay-outs would provide adequate funds to the beneficiaries to purchase the deceased ownership at an agreed upon value. The valuation should be updated regularly so that it properly reflects the financial development of the company and to ensure compliance with IRS regulations.

2. I know how to figure the value of my business, the Earnings Before the deduction of Interest, Tax and Amortization (EBITA) twice the annual revenue.

Revenue multiples, principally used by business brokers lean to the median multiple values and traditionally have proven to be too general for adequate valuation. This method does not precisely reveal the revenue multiple for a genuine transaction, but only reflects an average. This would leave questions as to the true value of your business. It is financially sound to know the proper and correct value of your business.

Business Valuation Resource Methods:

• EBITA
• Discounting
• Hurdle Rate
• General Rules
• Pay Back Method
• Commodity Theory
• Replacement Value
• Discounted Cash Flow
• Activity Based Costing
• Internal Rate of Return

A sensible and prudent owner or senior manager would do well to know the accurate market value of their business, even if they do not intend to sell. The question of your business’ actual worth should be something you are familiar with not just for you and your peace-of-mind but for the well being of your family and beneficiaries.

Assembling an adequate Business Valuation is vital for the enduring success of any company. Contact one our business savvy CPAs for assistance in outlining and implementing you business valuation.