What is Your Business Worth?
How to Value a Business or How Much is a Business Worth?
Your business may be your most valuable asset, so it is important that you develop a proper understanding of its potential sales value. This is especially true if you are planning to sell it in the next 12 to 24 months. We take the responsibility of helping you determine an appropriate value and asking price very seriously! Your Sunbelt business broker has had extensive training on the various methods of business valuation and can help you price your business appropriately.
Why is Business Valuation Important?
Getting your business evaluated by a professional business appraiser is important part of the business selling process. Below are some key reasons why this is a good idea:
- Professional accredited business appraiser can examine all the documents and come up with a fair market value.
- Sellers can have a peace of mind that the price they are asking for the business is reasonable.
- Buyers can feel they are paying a fair price for the business.
Documents Needed for Business Valuation
Please work with your business broker to gather all the documents listed below.
- Three years of business tax returns and/or CPA generated statements.
- Current interim P&L and Balance Sheet.
- Questionnaire – completed from the point of view of the business prior to the sale/refinance.
- Breakdown of each owner’s duties, and compensation for all periods above.
- Purchase Agreement / Deal Structure / Letter of Intent, including all supplements and amendments.
- Building lease or ownership information (fair market rent, # of sq ft, lease expiration).
- Business spreads/cash flow analysis including all cash flow adjustments, add-backs or non-recurring items for all periods above.
- If Available: Past business plans, business valuations and/or business reviews (if applicable).
- If available: Marketing materials, photos, or material you deem beneficial to understanding your business.
Business Valuation Methods
For those requiring a more formal and comprehensive approach to business valuation, Sunbelt recommends the services of a reputable, independent, third-party valuation company, such as GCF Valuation or Nationwide Valuation, which performs thousands of business valuation engagements each year and has access to the most comprehensive databases of business transactions in the nation. Their reports are comprehensive, reader friendly and can be shown to prospective buyers and financing services. In addition to receiving a report on the fair market value of your business, you’ll have direct access to an accredited appraiser throughout the engagement to assure all of your questions are answered. Below is a list of services available to you through GCF Valuation. Other valuation companies may offer different services and turnaround times. Work with your local Sunbelt broker to determine your needs.
Calculation of Value (or “Value Calculations”)
The objective of a Calculation of Value is to provide an approximate indication of value based upon the performance of limited procedures agreed upon by the appraiser and the client. Although we try to follow USPAP, calculation reports are not officially considered an appraisal by the Uniform Standards of Professional Appraisal Practice, however it does allow for “adequate” and ”reasonable” care to our clients. Calculation of Value reports are utilized to provide a “preliminary” value for the broker to list the business for sale and to be utilized until a Complete Appraisal is required.
Turnaround Time: 5-7 business days to the preliminary draft phase
Complete Appraisal – Summary Report
Also called an “Abbreviated” or “Letter Form Written Report”, this abbreviated form of report is the minimum level of reporting embraced by the Institute of Business Appraisers (IBA) – BV Standards, but still meets USPAP requirements. The report contains at least a summary of the material factors that leads to the conclusion, but is usually intended to reduce the normal appraisal burden of writing a comprehensive report. However, the appraiser is still required to perform materially the same investigation and analysis as would be required for a complete self-contained report.
Turnaround Time: 3-4 weeks to the preliminary draft phase
Complete Appraisal – Self-Contained Report
This is a formal presentation of the value of a business in a self-contained written report. If a valuation has the potential to go to court or if the report needs to be reviewed by others, such as the IRS for tax implications, this type of report explains in full detail how the value was derived. Uniform Standards of Professional Appraisal Practice (USPAP) and American Society of Appraisers (ASA) address the above as a “Comprehensive, Written Business Valuation Report”. The Institute of Business Appraisers (IBA) addresses the above as a “Formal Written Report”.
Turnaround Time: 4-6 weeks to the preliminary draft phase.