Business Valuation Process
Business Valuation Process:
It is common for business owners to arrive at their first meeting with an NLBA professional with no idea of what the business is worth. This is not a negative reflection on the owner. Properly determining the estimated value of a privately held company or family owned business is a sophisticated process that takes experience, knowledge and the ability to subjectively assess market conditions for an entity that has no direct market comparable. A proper evaluation process should take into account the industry of the business, the financial performance of the company over a multiple year period, the demographics of its customer base, tangible and intangible assets and the location.
NLBA is unique in the mergers and acquisitions (business brokerage) world in several ways with regard to the business valuation process:
Knowledge & Experience
We have the knowledge and experience IN HOUSE to properly evaluate business to determine their estimated market value. This is a critical component of our successful representation of our clients as we believe the ability to justify the price of a business from a position of knowledge to a buyer, CPA, lender and/or attorney is necessary for professional representation. As contrast, it is common for our competition to outsource business evaluations because they do not have the knowledge and experience to complete the task internally.
The question to ask yourself is would you want the expert who assessed your business to provide the evaluation and answer questions about the assessment or have a salesperson present information based on another person’s work when trying to close on a transaction.
Our valuation thumbnails are provided as a complimentary service as a means of conveying our knowledge, experience, and superior customer service “risk free” to potential clients. The valuation thumbnail also serves as a screening mechanism for NLBA to assess whether we are interested in the representation project.
Many companies sell valuations for tens of thousands as a profit center and will commonly provide an above market value to win the business and have a happy customer immediately after payment.
We are accountable for the value suggested in our valuation as 100% of our compensation is tied to successfully completion of a sale. It is common for our clients to sell within 5-10% of their list price and business sales completed at or above list price are regular occurrences for NLBA professionals. if the right market conditions exist.
We also traditionally complete most of the projects we take on within 1-2 years, with the more difficult projects typically being the result of location, industry and/or lack of cash flow. Achievement of a list price to sale price within striking distance is a direct relation to NLBA’s knowledge and ability to present the business and represent the seller.
The above said, it should be noted that valuing a privately held company or family owned business is subjective science. The true definition of market value for a company is what a buyer and seller agree to in a good faith negotiation.
From time to time NLBA professionals are hired as consultants to provide professional opinions related to business value for internal sales, family sales, and partnership buyouts by business buyers and for estate planning purposes. For these instances we should note, we are not certified business appraisers and are simply offering our opinions on value.
We are also a common resource for information on business value for banks, accounting professionals, appraisers, attorneys, financial planners, and consultants. In some cases we will recommend third party valuation and will facilitate documents from and summary needs with special interests and independent third party valuation. If you need an accredited valuation ask one of our advisers.