Valuation Process
The purpose of the business valuation is the most important factor in the valuation process and drives how the project is performed.
A valuation performed on a going-concern basis is very different than a valuation of the same business performed for liquidation purposes.
When performed for a going-concern, the valuation of a company is, in general, based on the outlook of the company. In other words, how much could a hypothetical buyer of the company expect to receive as a return on his or her investment? The outlook is based on the current or historical financial performance of the company as represented by the financial information provided to the valuation analyst, and on management’s estimate of future cash flow. We also talk through various operating aspects of the company to assess overall business and market risk.
For certain types of valuation, we look at relevant comparable companies, either public or private (Peer Group), and transactions that have occurred near the valuation date. These market approaches can be a very relevant benchmark for a company’s valuation.
Depending on complexity, a valuation project generally takes approximately six to eight weeks after all pertinent company information has been received by the valuation analyst. This information includes five years of historical financial statements (or tax returns), including the most recent interim statements (or quarterly returns). This information also includes company background information, organizational information, year of incorporation/formation, management experience, information on facilities, customer base, competition, employees, shareholder/ownership breakdown, extraordinary expenses incurred during the year, and management’s outlook for the next five years.
After the analysis is completed, a report is created. Depending on the type of valuation, it may or may not be a Qualified Appraisal report.
Questions to Ask Yourself
No, we try our best to minimize your involvement in the process, unless you want to be heavily involved. Aside from providing the initial data request (financials, organizational documents and ownership information) and having a detailed conversation about the business, we handle the rest.
We take the time to walk you through the analysis so you understand how we arrived at our conclusion and how the value could change under different scenarios, assumptions or risk profiles. We can also talk with your advisors in detail, so they too understand how we arrived at our conclusion.
Not always. Depending on the purpose of the valuation, sometimes we can provide only a range of values to aid in planning or just a general understanding of the value of your business.
