Business Valuations in the United States
What is a business valuation
A Business valuation is a process and a set of procedures used to estimate the economic value of an owner's interest in a business. At LINK we provide business valuations through an "appraisal methodology" ;to determine the price someone is willing to pay or establish the price to effect the sale of a business.
Reasons to seek a business valuation
In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of a partners' ownership interest for buy-sell agreements, and many other business and legal purposes such as in shareholders deadlock, divorce litigation and estate contest.
At LINK we focus on appraising businesses for the purpose of selling assets and stock as a going concern.
What is the Value of a business
Many business owners believe the value of their business is net profit, or gross sales, multiplied by an industry rule of thumb. Using this method will often give a different result than the value that can be achieved by a LINK business broker.
The true value of a business is based on the following elements:
|Intangible assets||Tangible Assets|
|Goodwill||Real Estate Machinery|
|Customer lists||Plant, equipment, furniture and fittings|
|Trademarks and copyrights||Debts|
|A superior management team|
Quite often the value of a company's intangible assets is greater than the tangible assets. Valuing intangibles, however, is where the services of a business valuation professional are recommended as it requires a careful analysis of many aspects of a business enterprise. To value intangibles, the following five criteria must be considered:
- Management Capabilities
- Company strengths, weaknesses and vulnerabilities
- The competitive environment
- Overall expectations for the marketplace
- Economic prospects for the industry.
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A LINK Business Value Appraisal
At LINK our business value appraisals form part of a bigger report in which our brokers and in some cases valuers, evaluate a business and provide a detailed appraisal. Our Business Value Appraisal is both a provision of our estimate of a business’s worth, but also an appraisal of its position in the market and it’s sale-ability.
For many business owners this provides a more rounded view of their business and not simply a business valuation, or a number against the worth of a business.
We believe that most businesses are so much more than a number and that any fair business appraisal should take into account a number of key factors and provide greater insights for the business owner than a mere number.
By providing sound advice and insights, our brokers are able to deliver achievable targets that will increase the value of a business and endeavour to increase the perceived value or worth of that business.
Download our Guide to Managing the Sale of Your Business here
A 20 page guide to all you need to know when it comes to selling your business.
4 Key Elements of a LINK Business Valuation
Economic Situation A look at national, regional and local economic conditions existing as of the valuation date, as well as the conditions of the industry in which the business operates. After all, no business operates in a silo and therefore any appraisal needs to consider the environment in which a business operates
Financial Analysis A look at the financial statements of the business, using ratio, trend and industry comparative analysis tools to deliver a more scientific report on the financial state of the business. As the largest business brokerage in the world, LINK looks at industry comparisons both nationally and internationally. With a wide spread of brokers and more business sales than any other brokerage, we’re able to provide a more experienced report based on analysis of a huge volume of sales.
Accounts Normalisation Any prospective purchaser needs to know how much cashflow they can extract from the business without unduly affecting operations. Our appraisal takes several approaches to making adjustments to the accounts to deliver a fair reflection of the opportunity.
Business Market Value There are three broad approaches to business valuation and then a number of techniques that can be used within each approach. At LINK we consider all three business valuation approaches before providing a recommendation on which to apply to a particular business.
Your LINK Business Broker is well placed to talk you through the process we follow in appraising any business for sale.