Business Valuation & Appraisal Services

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            Find out what the true value of your company is

You know the value of your home, your car, but ask yourself,

“Do you know the value of your business?”

Want to Increase Revenue and Make More Profit Before Selling your Business?

 

A business valuation can help you grow and maximize the value of your business. We use the industry’s BEST and PROVEN methodologies for uncovering the core inefficiencies your business is facing and then specify the added value for fixing them. We deliver a plan of action that includes detailed tasks that are ready to execute. You will receive the help you need to grow your company to the next level. Our initial assessment provides you with an actionable executive report. The report shows what your company is worth, what it could be worth, and how to get there and to learn more about the growth assessment and profit & value enhancement services. 

 
Our Business Valuation Process is Simple

​​Step 1. Initial Face-to-Face Consultation: We discuss your industry, why your valuation is needed, and get an understanding of your company.

 

Step 2. Engagement Agreement: If you would like to proceed, we enter into an engagement agreement.

 

Step 3. Data Gathering: We will gather pertinent data including up to 5 years of tax returns and financial statements.

 

Step 4. Valuation Analysis: We analyze the provided data and financial information, in order to come to a good understanding of the business issues.

 

Step 5. Valuation Report and Discussion: We meet face-to-face to go over the completed valuation and discuss insights and action plans. You get a PDF and professional book version of the valuation.

 

What is a Business Appraisal?

 

Simply put, a business appraisal is an opinion of the fair market value of a business (or portion of a business). Fair market value is the price at which property would change hands between a hypothetical willing and able buyer and a hypothetical willing and able seller, acting at arms length in an open and unrestricted market, neither of whom are under any compulsion to buy or sell, with both having reasonable knowledge of relevant facts. 

 

Why have a Business Appraisal?

Business valuation engagements are performed for a variety of reasons. Some valuations are required, such as in cases of estate tax or marital dissolution, while others arise from the desire to identify a value, such as a basis for a business purchase or sale.

 

Regardless of the motivation, it is crucial to have a business valued by an appraiser who is proficient not just in analyzing the financial statements but also who has an understanding in converting those accounting numbers into estimates of future performance, which ultimately create the basis for value.

 

The most common reasons why a business may need to be appraised are:

  • Buying or Selling a Business

  • Buy-Sell Agreement

  • Marital Dissolution (Divorce)

  • Estate Planning for Gift Tax or Inheritance

  • Family Limited Partnerships or Limited Liability Companies

  • Employee Stock Ownership Plans (ESOPs)

  • Litigation Issues involving Lost Profits or Economic Damages

  • Stockholder Disputes

  • Insurance claims

  • Mergers & Acquisitions, Reorganizations, Liquidations, and Bankruptcy

  • Charitable contributions

  • Allocation of purchase price

  • Valuations/Appraisals of Business Interests and Securities (Control and Minority Interest)

  • 409a Valuations for Issuing Stock Options

  • Stock Incentive Programs (Restricted Stock, Stock Appreciation Rights)

  • Life Insurance Funding

 

What's Involved in a Typical Business Valuation Process?

When a company calls a business valuation firm, they often don't know what to expect. But from the moment of that initial contact, our Business Valuation Specialist is already gathering the information needed to begin the process. Questions such as why the business appraisal is needed, how is the business organized, and what are the plans for the future of the business play an important role as our appraiser determines what information will come into play during the business valuation process.

 

Our Business Valuation Specialist will then request information. They ask for financial records, up to 5 years of records. We look at historic financial statements and adjust them as necessary to gain the best possible picture of your company's financial history. This will help if an income-based approach is used to valuing the business.

But what about your business' reputation for excellence in the community or industry? This will come into play as well. If your restaurant represents the only real place to go for exceptional Italian cuisine and is a hit in the area, it will have a much higher value than an average cafe that doesn't stand out from the crowd at all.

Your assets will also come into play. Do you have an exceptional location for your store or service? This will be reflected in the appraised value as it is calculated by the Business Valuation Specialist. If your equipment has been very well maintained and is expected to provide many more years of reliable service, it's worth much more than neglected machinery that will need to be replaced before production can really begin again.

What condition is your industry or market in? Selling a residential construction company right after the housing bubble burst in 2008 wouldn't have gained you much, but selling an oil drilling company when the oil fields were just being tapped would have provided a significant profit. When your market is going well, you're much more likely to find a buyer willing to invest.

 

Though the business valuation process can seem complicated, it really just looks at the information that is available and then determines a fair value for that company. Our Business Valuation Specialist can make this process seem easy because they've spent significant time during the training process learning which approach is needed in which situation. By taking advantage of this knowledge, you can quickly gain important insights into your business' operations, place in the market, and potential for improvement.

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Business Valuation Approaches

 

The valuation section is the main part of the report and discusses the different valuation approaches and methods chosen.

A valuation approach is “a general way of determining a value indication of a business… using one or more valuation methods.” A valuation method is, “within approaches, a specific way to determine value.” There are three valuation approaches:

​​

1. Asset Approach

In this approach, we seek to measure value through the calculation of assets net of liabilities. One can use book or market values of assets in this approach.

​2. Income Approach

In this approach, we seek to measure value by converting anticipated economic benefits into a present single amount.

 

3. Market Approach

In this approach, we seek to measure value through comparing the subject company to other businesses or business interests that have sold. Some use information from the sale of private companies, others use the sale of public companies or the price of stock as of the date of valuation for comparable public companies in the same or similar industry.

 

Commonly Used Business Appraisal Methods

​1. Adjusted Net Book Value Method

The most commonly used method within the asset approach is called the Adjusted Net Book Value Method or Asset Appraisal Method. In this method all assets and liabilities are adjusted to their fair market values, which may be a going concern value or liquidating value, depending on which is more appropriate in the context of the valuation. The fair market value of stockholder equity is then calculated by subtracting the fair market value of the liabilities from the fair market value of assets. This method generally is applicable as the primary valuation approach for two types of businesses: (a) those about to be liquidated, and (b) holding companies whose operating companies are publicly traded.

 

The major shortcoming of this approach is its ineffectiveness in accounting for unidentified intangible assets, including, but not limited to goodwill and assembled work force value. Therefore to the extent that these assets are missing from a “fair market value Balance Sheet,” the Adjusted Net Book Value estimate of fair market value will be too low. Additionally, it is not always economically practical to calculate the fair market value of every asset and liability, which introduced additional valuation error into this method.

 

2. Discounted Future Returns (DFR) Method

Within the income approach, the Discounted Future Returns Method is based on the concept that the value of a business is best measured by the presently estimated value of the net income, cash flow, or dividend streams it can generate in the future. These estimated streams of a business enterprise are then adjusted to reflect the time value of money as well as the associated business and economic risks of that enterprise.

 

The DFR Method is widely recognized as the theoretically most valid approach. The Discounted Future Net Income, , and Discounted Dividends Methods are subsets of the Discounted Future Returns Method. One can forecast net income, cash flows, or dividends, and then discount them to their net present value. The Discounted Dividends Method is rarely used, since most privately held firms do not pay dividends. The Discounted Net Income Method is less accurate than the Discounted Cash Flow Method and is used when cash flow information is not feasible.

 

3. Guideline Company Method (Market Comps)

The “Guideline Company Method” is a method within the market approach, which compares the subject to similar businesses that have been sold. The “Guideline Company Method” involves developing either regression analysis and/or ratios of stock price to earnings (P/E Multiples), cash flow (P/CF Multiples), and Book Value (P/BV Multiples). The stock prices are those of public companies in the same or similar business as the Company. Consideration is therefore given to the opinion of informed investors and what they are willing to pay for the stock of comparative public companies as adjusted for the specific circumstances of the Company.

 

P/E multiples established in active trading are expressions of what prudent, arm’s-length investors believe are fair and reasonable rates of return for these securities, given the risk inherent in those businesses. A risk analysis is then performed to compare the Company to the publicly-traded firms in terms of size, diversity of operations and products, financial strength, profitability, growth, and other factors recognized as key indicators of risk in order to adjust the P/E multiple.

 

4. Capitalized Excess Earnings

This venerable asset-based business valuation method was first introduced in the 1920s by the U.S. Treasury Department. The method is designed to determine the value of business goodwill as well as the total business value. Business goodwill is determined as the so-called capitalized value of the business excess earnings. The excess earnings are defined as those economic benefits generated by the business over and above a fair return on its net tangible assets.

 

5. Multiple of Discretionary Earnings

This method establishes the value of a business based on its income. The appraised value is computed by multiplying the business discretionary cash flow by a factor, then adding the liquid working capital, defined as the difference between the business' liquid assets and current liabilities. The multiplication factor used in the valuation is determined by assessing a number of criteria describing the business, the industry, and competitive environment. We use multiple criteria such as:

  • Does the business provide sufficient income?

  • How easy is it for me to take over the business?

  • How competitive is the market the business operates in?

  • Do the employees possess the skills to help me run the business once the seller is gone?

  • What assets and liabilities does the buyer acquire in buying the business?

  • Likelihood of business and industry growth.

  • Nature of business and its desirability.

  • Business location.

  • Employee skills and stability.

  • How concentrated the business is in its products and geographic presence.

  • How attractive you feel the business will be for you as a new owner.

  • To what extent you can rely on the employees in managing the business without the owners being directly involved.

  • How attractive the business financing or purchase terms are.

 

Common Valuation Issues to Consider

 

1. Recasting Financial Statements

We use up to five years of financial statements available for the business. Here are the typical adjustments, known as addbacks, that you we make to arrive at a realistic assessment of the seller's discretionary cash flow:

  • Deduct non-operating sources of income and expenses, such as rental property income or non-business related personal expenses.

  • Add or subtract the expenses that reflect non-recurring events. An example would be a one-time business relocation expense.

  • Add back interest. The new business owner will decide on strategy in obtaining and managing debt capital.

  • Add back depreciation and amortization expenses. The new business owner will determine what levels of reinvestment the business requires to run smoothly.

  • Add back the owners total compensation. The standard way is to allow for a single owner/operator. We adjust the compensation of working owners to a fair market compensation value.

  • Factor out non-operating assets, such as the owner's real estate that is not used by the business.

  • Estimate the fair market value of the business assets such as inventory and furniture, fixtures and equipment. We may consult an expert to refine this estimate during our due diligence.

  • Deduct all liabilities that will not be included in the deal.

 

2. Control Issue

The percentage owned of a business has a large impact on the value. A non-controlling interest is typically worth a lot less than a control interest. A minority interest does not have the ability to sell underlying business assets, nor the ability to force the sale of the firm to achieve liquidity. Minority interests neither have the ability to change dividends or other compensation. They typically have no cash flow from their investments. The control owners are able to divert corporate funds to themselves in the form of high salaries, perks, etc. The business appraiser must determine if a discount for lack of control is applicable, and if so, the magnitude of the discount.

3. Marketability

Ownership interests are considered liquid, or marketable if the investors can convert their investment to cash in three days. For instance, interests in the stock market, i.e., interests in publicly-held firms, are marketable.

 

On the other hand, ownership interests in privately-held companies are considered non-marketable. As part of the appraisal process, the appraiser must determine the appropriate discount for lack of marketability that should be applied to a specific business ownership interest. The level of control impacts the magnitude of the discount for lack of marketability. A minority interest is less marketable than a control interest. Hence, the marketability discount should be higher for a minority interest.

Business Strategy Valuation Services Offered

  • Pre and Post Site Inspection Training

  • Dedicated Site Specific Supervisor and Staff Organization  

  • Reserved Equipment Assignment

  • Hands on Executive Analysis

  • Executive Management Overview

  • Mid-Level Management Overview

  • Labor Force Overview

  • Administration

  • Human Resources

  • Accounting

  • COA

  • Budgeting

  • Scheduling

  • Purchasing

  • Strategic Planning

  • Client Relations

  • Vendor Relations

  • Team Building

  • Market Assessment

  • Growth Potential

  • Company/Industry Specific Module Implementation

  • SWOT Analysis

  • Marketing Strategy

  • Established Safety Program Coordination

  • Established Safety Program Implementation

  • 24-Hour Staffing Instruction

  • 24-Hour Service Department Organization

  • Weather Advisory and Report Implementation 

  • 24-hour / 7 days a week Weather Monitoring Coordination

  • Back-Up Equipment/Labor Plan Advisory

  • Environmental and Property Safe Chemical and Industry Leading Technology Analysis

 

 

Contact us for a free face-to-face consultation. Anywhere in Colorado.

303-222-8047

Monarch Business Valuations

                303-222-8047