VALUE-A-BUSINESS.COM The online business valuation center of C&S Associates Helping business owners since 1979

My Business Valuation procedure includes the following steps.

• Analysis and spreadsheet comparison of three years of your financial statements or tax return data.

• In-depth management/owner questionnaire - over 100 questions.

• On-site visit and tour of key facilities.

• Interviews with key managers and outside accountant/CPA and attorney, if applicable.

• Analysis of your one time events and discretionary expenses.

• Pro forma restatement of your income statement to normalize one time revenues/expenses and to adjust for any discretionary expenses.

• Ratio analysis of key financial ratios to detect strengths, weaknesses and trends.

• Application of multiple methods of determining the value of a business. The number and type of methods are determined by conditions existing with the business. A range of values is determined for each method.

• Graphical representation of the various ranges on values calculated - a powerful presentation tool for bankers, stockholders, and other interested parties.

• Reconciliation of the values determined from the various methods to a single Fair Market Value.

• Delivery of a professional Business Valuation written report.
  

Depending on the specific circumstances surrounding your business and the specific reason for the Business Valuation, I also do the following as appropriate:

• Consolidate (or exclude) the financial data of various business entities to reflect the total business that you want valued. For example, you may own a manufacturing company and a leasing company that primarily leases equipment to your own manufacturing company. Often it is the consolidation of both entities that is being valued.

• Restate the financial statements to reflect significant real estate parcels as leased rather than owned properties. Professionals that do Business Valuations are seldom also qualified to make real estate appraisals in the businesses local area. Restating the financial statements to reflect the real estate as leased rather than as owned by the business is one favored approach to exclude the real estate from the expressed opinion of the value of the business. Also, many business owner's choose to keep their real estate to lease and sell only the business assets.

• Offer a valuation opinion on minority interests. Minority interests can become very tricky. There is significanly more value (much more than 2%) to a 51% interest in a company than to a 49% interest. Applying appropriate discounts for a minority interest or a block of minority interests (which may become a majority interest, hence having control of the company) is a complex issue.

• Provide Seller Training . Most business owners have never been through the process of selling a business. The sale of a business is a much more complex transaction than selling a parcel of real estate, residential or industrial. Our Seller Training covers many of the aspects of the sale process that business owners will encounter as they proceed to sell their business. This part of the valuation often turns out to be as important as the Business Valuation.

• Provide recommendations to prepare a business for sale and to increase the value of the business.

• Recommend an asking price for the Business. Setting as asking price for a business is a delicate decision. On the one side, seller's want to be sure that they are maximizing the value they will receive for the business, On the other side, an asking price that is too high frequently will scare off potentially qualified buyers.

If you would like a "ballpark" estimate of the cost to make a Business Valuation for your business, please try our online Business Valuation Cost Estimating Program. This program calculates an estimate of the cost to make a Business Valuation for your business based upon your answers to seven questions. This is only a "ballpark" estimate subject to revision after the entire circumstances are known. However, the estimate may assist you to decide you course of action.

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A Business Appraisal includes the steps in the Business Valuation above and adds other external data such as local, regional, national, and international economic trends as applicable, industry trends related to the business, and external comparable values from similar companies.

Business Appraisal are unique to each situation and require a further understanding of the circumstances before quoting. See the right hand column on this page for a further discussion about the differences between a Business Valuation and a Business Appraisal.

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OTHER SERVICES

I also provide additional services as requested by client. Depending on the reason for the Business Valuation, I have been asked over the years for such services as the following.

• In-depth succession planning regarding family business transition to the next generation. This is an especially complex service as there are always "hard" business issues and "soft" family emotional issues that need to be addressed.

• Development of complete Business Plans with financial cash flow projections for loan application packages. Numerous bankers have complimented me on the completeness and credibility of these packages.

• Legal depositions and opinions. While I have been challenged by opposing attornies, I have an excellent track record defending the valuation opinions I have expressed.

• Interested party meetings. Frequently I am asked to meet with other interested parties regarding my valuation opinion. These parties may include other shareholders, debt holders, minority interest holders, spouses, other family members, etc., or it may be accountants or attorneys representing these interested parties.

• Formal presentations. I have been asked to make formal presentations to bankers, boards, family groups and others related to the valuation opinion.

• Offer management recommendations. As a business consultant, I am frequently retained to make an outside evaluation of a business with a few days of an on-site analysis. In these short term assignments, seldom do consultants actually raise any new revelations. The value of these assignments lies in the processes. First, the owner and key managers must consider and respond to the key questions. This forces confronting important long term issues that are all too often ignored in the day-to-day urgency of running a small business. Second, the consultant's processeses of organizing and prioritizing issues often shed a new perspective on these issues - a valuable tool for a forward-looking business owner.

• Prepare Business Sale Profiles. There are three important reasons to prepare a comprehensive Business Profile when offering a business for sale.
  • Often business buyers come from outside the immediate geographical vicinity of the seller. The Business Profile is the sales tool to get them to make their initial visit - even known buyers!

  • The Business Profile is a snapshot of the business at a defined point in time. By having a consistent presentation, sellers need not be concerned that data given for one prospective buyer varies from another prospective buyer. While buyers understand that business is dynamic - changes will occur - and the Profile is only a snapshot, the consistency value should not be underestimated as multiple potential buyers are interviewed and negotiations occur. Even when your prospective buyers are already known to you, this information needs to be put together; doing it once is easier than doing it for each buyer.

  • Most important, a complete professional Business Profile generally serves to shorten the prospective buyer's decision cycle, usually cutting out at least one visit to the seller's facility. In addition to helping to maintain confidentiality, the Business Profile is intended to answer the majority of the buyer's questions before the first plant visit. My goal is to have the buyer concentrating on the question, "What is the value of this business to me?" instead of the hundreds of other questions such as pay rates, fringe benefits, customer concentration, etc., that should already be covered in the Business Profile.

  A good Business Profile makes your business look better. And the better the business looks, the better the price paid.

• Representing Sellers and Buyers. I have assisted sellers and buyers in all phases of completing a deal including seller preparation, searches for qualified buyers or sellers, site visits, negotiations, and closing. Usually the financial arrangements have been a combination of hourly/daily rates and a contingency based upon completion of the transaction.

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PLEASE CALL - there is no obligation. I would be pleased to discuss your situation, in complete confidence, and quote you the cost for preparing a Business Valuation for your business, a Business Appraisal, or for any other services. Call me, Pete Smith at 205-987-5315.

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BUSINESS VALUATION vs. BUSINESS APPRAISAL
by: Pete Smith

The Internal Revenue Service has issued ruling 59-60 that outlines all the relevant factors which should be considered in determining the fair market value of a company.

• The nature of the business and the history of the enterprise from its inception
• The economic outlook for the company
• The book value of the stock and the financial condition of the business
• The earning capacity of the company
• The dividend paying capacity
• Goodwill or other intangible values
• Sales of the stock and the size of the block of stock to be valued
• The market price of stocks of actively, publicly traded corporations in similar businesses

In order to make a complete APPRAISAL of a business, we must take into account all of the factors listed above. We distinguish between an APPRAISAL and a VALUATION (sometimes called an Evaluation).

In the factors listed above, three external items outside of the company must be considered.

• "Economic outlook" refers to issues involving the economic conditions (recession, inflation, growth, geopolitical concerns, etc) that influence the business. A business dealing in a local market is affected by local conditions, one dealing in an international market is affected by conditions involving the applicable countries or regions.

• "Economic outlook" also refers to the specific industry(ies) to which the business belongs. Is the industry growing, downsizing, staying the same? What barriers of entry exists to the industry in terms of technology, capital, etc.

• "Market price of stocks...in similar businesses" implies that valuation comparisons should be made to publicly traded companies. And, according to accepted appraisal techniques when the information is available, comparisons should be made to the valuations of other similar, privately held businesses where recent arm's length transactions have set fair market values.

For most situations, the outside items may be ignored or treated minimally. We call valuing a business under these circumstances, a VALUATION (or Evaluation).

For situations where the value is going to be the basis of a significant lawsuit or involve a disputed tax situation, the external factors may have to be taken fully into consideration. We call valuing a business under those circumstances, an APPRAISAL.

Valuations are used when an owner is considering the sale of his or her business, or the purchase of a businesss where many other factors are involved in the overall decision: terms, employment contracts, continued employment of key individuals, real estate leases, etc.

Valuations are also used where the higher cost of an Appraisal is a concern and the stockholders or other parties involved mutually agree that the level of accuracy afforded by a Valuation is sufficient: contractual buy/sell agreements, family transactions, divorce settlements, etc.

Many times a good VALUATION with minimal treatment of the external factors is satisfactory for tax purposes as well for: estates, gifting, ESOP and other tax relevant situations.

As a rule-of-thumb, the cost to make a complete professional APPRAISAL of a business taking into account these external items, is two to four times the cost of a VALUATION depending on the extent of outside research necessary, the number of product lines, and the availability of data for comparable businesses with recent transactions.

The addition of these external items in certain situations may result in an Appraisal Value significantly different than the value reached from a Valuation.

However, when professional, experienced consultants are used to make a Valuation, the difference between an Appraisal Value and Valuation Value is usually not significant under most ongoing business conditions