Business valuation

business valuation calculation
QUITE SIMPLY, A BUSINESS VALUATION OBJECTIVELY DETERMINES

How a qualified third-party views the Value of a Business

An accurate business valuation provides so much more than just a number or range of numbers for the value of a business.

A business valuation is typically used by the seller and buyer of a business but it also touches the other parties assisting in the transaction.  This includes the business broker or intermediary, any lenders being asked to provide finance for the transaction, the attorney and/or accountant or CPA for the seller and buyer, and other interested parties.

What are the benefits of a business valuation?

First and foremost, it builds confidence as it is done by a qualified third party. Secondly, it establishes trust so that the viewers of the valuation may not agree with the final number but it allows a rational conversation to take place. Thirdly, and equally important, it allows for the parties in the transaction to build a relationship and decide if they can and want to work together to reach an outcome acceptable to both parties.

Three Types of Business Valuations

Every potential transaction (or often there can be a dispute) requires a different type of business valuation.  Some business valuations can be quite complex so it is critical to get the right valuation for the right purpose.  In broad terms, there are three types of business valuations:

1. Broker’s Opinion of Value (BOV)

If you are the owner of a business considering a sale, you’ll most likely want a Broker’s Opinion of Value (BOV). This report brings together a Most Probable Selling Price (MPSP) for the business by using three valuation methods – Market Data, Income, and Cost or Asset Approach. This will give you a starting point for setting a price if you are looking to sell or buy a business.

To see a sample Brokers Opinion of Value, click here.

2. Standard Informational Valuation

The Standard Informational Valuation is a non-certified report that provides the value of a business based on financial performance, market variables, comparable sales data, and industry expertise that indicates what a buyer might willingly pay for the business on the open market.

Within this report, you will find a market-based valuation based on sales, SDE (Seller’s Discretionary Earnings), and EBITDA multiples as well as the asset value of your company. The valuation explains the use of different methods as well as each calculation.  The report includes the historical financial details of the company as well as adjustments to the financials, which are the basis of the valuation. You will see a “likely” or “suggested” price based on the median value of the comparable transactions.  The value of the business will likely fall within a range or be close to the final sale price of the business.

Typically, 35+ pages, this report is best suited for individuals who do not need a certified valuation and are comfortable with more limited procedures and reporting. Recommended for businesses with more than $2M in revenue and/or real estate included in the sale.

Common uses include:

  • Buying a business.
  • Selling a business.
  • Partner buy-in/buy-outs.
  • Exit planning.

To read a sample Standard Informational Valuation, click here.

Certified Valuation Reports

Certified valuation reports are invaluable for supporting business acquisitions, divestitures, estate planning, partner disputes, marital dissolutions, and bank loan applications – when the valuation must be credible and stand up to scrutiny. These types of reports are best when you expect a lot of scrutiny over the value or when there is a high level of interest in detailed support and explanation of the valuation.

All reports are prepared and signed by a NACVA Certified Valuation Analyst (CVA). We offer two types of certified valuation reports: Certified Summary and Certified Detailed Reports.

3. Certified Summary Valuation

The Certified Summary Valuation is invaluable for supporting business acquisitions, divestitures, estate planning, partner disputes, marital dissolutions, and bank loan applications – when the valuation must be credible and stand up to scrutiny.

These types of valuations or reports are best when you expect a lot of scrutiny over the value or when there is a high level of interest in detailed support and explanation of the valuation.

All reports are prepared by our valuation team and signed by a NACVA Certified Valuation Analyst (CVA). We offer two types of certified reports: Certified Summary and Certified Detailed Reports.

Common uses include:

  • Gift/Estate planning
  • Employee benefit plans
  • Litigation
  • Partner dispute resolution
  • Bank loans
  • Divorces
When to use a Certified Summary Valuation

Certified Summary Reports are typically 65 pages in length and provide a condensed version of the information provided in a Certified Detailed Valuation Report.

Summary reports can be easily read to quickly understand the valuation of the company. Ideal for acquisitions, divestitures, IRS submissions, partner disputes, and bank loan reports when substantiating information is needed to be presented to third parties.

To view a sample Certified Summary Valuation, click here.

FOR YOUR BUSINESS

Reasons to do a Business Valuation

  • Obtain financing for your business
  • Settle a Shareholder Dispute or reach a Shareholder Agreement
  • Determine the value of your business for a divorce settlement
  • Open an Employee Stock Option Program (ESOP)
  • Plan your estate or gift taxes
  • Put in an insurance claim
  • Successfully navigate litigation against your company
  • Conduct a merger or a partnership buyout
  • Convert from a ‘C’ Corp to an ‘S’ Corp
  • Allocate a Purchase Price

Get in touch today to talk about your business valuation needs. Andrew will be happy to help you, in any way he can.

    YOUR SACRAMENTO CALIFORNIA BUSINESS INTERMEDIARY

    ADDRESS

    5150 Fair Oaks Blvd, #101-198
    Carmichael, CA, 95608-5788

    PHONE

    Phone: (916) 570-2674
    Fax: (916) 473-8655

    EMAIL

    info@rogersonbusinessservices.com

    Buying or selling a business is a complex process – and you shouldn’t go through it alone. You need an experienced business broker to guide you through the process.

    We make buying and selling businesses simple and straightforward. We’re qualified to handle the most complicated aspects on behalf of our clients, ensuring you walk away satisfied.