Why do you need a business valuation?
The prospective sale of the company might seem to be the obvious reason for getting a business valuation, but there are many other reasons as well. They include:
Estate, gift and trust planning– To determine estate taxes, a value must be placed on all assets which includes the business.
- Buy/sell agreements – A buy/sell agreement is an understanding between shareholders of a closely held business that specifies the terms and prices of a buyout when one or more shareholders want to sell.
- Mergers or acquisitions – If the merger is through the exchange of stock, both companies must be valued to establish a fair exchange.
- Divorce settlements – Typically, a business must be valued during divorce proceedings. The business is usually given to one spouse while the other receives assets of equal value.
- Litigation – In addition to divorce, there are other types of litigation that require a business valuation, such as eminent domain proceedings and insurance claims for lost business.
- Employee stock ownership plans (ESOPs) – An ESOP is a retirement plan in which company stock is donated instead of cash. The value of the stock must be determined annually to establish the employer’s deduction for the contribution.
- Initial public offerings – When a company goes public, the corporation’s stock must be valued to set the initial offering price.
What does a business valuation involve?
A business valuation takes into account all aspects of your business, from a review of the current management to a forecast of economic trends to a look at intangibles, such as goodwill.
Because there is no accurate “rule of thumb” to value a business, each valuation is a complex assessment of the unique history, financial status and future outlook of your individual company.
How is business worth determined?
The value of your business depends on the type of business being valued and the standards used. Among the most common standards are:
- Fair market value-the price that a willing buyer pays a willing seller.
- Fair value-typically defined by state statute. It is commonly used in dissenting shareholder actions.
- Investment value-the value to an investor based on his or her individual investment requirements. The value can differ among investors because of perceived differences in:
- Risk
- Growth
- Earning Power
- Tax status
- Liquidation value-the net amount that an owner could realize if a business is terminated and the individual assts are sold off.
How else will a business valuation help?
Because of its in-depth analysis of all factors affecting your company’s performance, a business valuation is an excellent starting point for developing a strategic plan for your company’s future. A valuation will point out areas of weakness and strength, as well as possible opportunities for future growth.
My businesses use valuations on a regular basis to objectively measure their company’s performance.
TEN FACTORS THAT CAN MAKE OR BREAK THE VALUE OF YOUR COMPANY
Value enhancers
- Trained, stable work force
- Established, creative team
- Product/service with a clear competitive advantage
- Stable revenues and profits
- Clearly defined goals-corporate focus
- Expanding markets
- Opportunity for significant productivity increases
- Well-maintained plant and equipment
- Effective management information
- Barriers to market entry
Value Detractors
- Low morale and high employee turnover
- Dominant, autocratic leadership
- Highly competitive product/service lacking differentiation
- Volatile revenues and profits
- Lack of a cohesive business strategy
- Stagnant or declining markets
- Limited productivity enhancement potential
- Poorly maintained physical plant
- Lack of management information
- Ease of market entry
What will a business valuation tell you?
Placing a monetary value on a company or business involves much more than simply determining what a potential buyer might pay for it.
There are many factors that need to be taken into account – such as the type of company, market value, investment value, growth potential, tax laws, and of course, the individual circumstances of each business owner.
You may have a “number” in mind of what you believe your business is worth. But are you sure it’s right? It might be too low. It’s in your best interests to discover the true worth of your most valuable asset.
Our professionals have many years of experience in a wide range of business valuation issues and can help set an appropriate, realistic value for your company.
Jim Chakires is a Certified Public Accountant (CPA) and a Certified Valuation Analyst (CVA). As a CVA, he has completed a rigorous certification process to ensure that he possesses the professional knowledge to determine the value of closely held businesses.
Academic and Professional Credentials
Bachelor of Science, Accountancy, Northern Illinois University, 1992
Certified Public Accountant
Certified Valuation Analyst
Position and Experience
President and CEO, Apex CPAs and Consultants, Inc., 1998-Present
Mr. Chakires has 18 years experience in the public accounting industry as an advisor to small and middle-market business owners on areas such as taxation, budgeting and cash flow, profitability improvement, bank debt negotiations and business valuation. Mr. Chakires has recently served as a professional panelist for the Keller Graduate School MBA Program.
Professional Affiliations
National Association of Certified Valuation Analysts
American Institute of Certified Public Accountants
Illinois CPA Society
Treasurer – Rotary Club of Geneva Illinois
Finance Committee member – St. Charles Country Club
Board of Directors member – St. Charles Country Club
Former Advisory Board Member – American Bank and Trust