Summary

• Preparing for a Valuation
  A business valuation can help determine a fair buying or selling price, guide strategic planning, or assist with tax preparation. It’s crucial to choose a reliable valuator and ensure they have access to all necessary business information. Their first task will be determining the appropriate level of valuation complexity based on your needs.
• Valuing a Company
  Various methods exist for valuing a business, and the right approach depends on the business type and the transaction. Valuing intangible assets, which often form a significant part of the company’s worth, requires special expertise. Avoid common valuation pitfalls like setting unrealistic expectations, especially when attempting to value the business without professional assistance.
• Price vs. Value
  The valuation figure provided by a professional often differs from the final market price. Factors such as the seller’s urgency, the buyer’s strategic goals, or available financing can influence the final price. It’s essential to focus on strategies that maximize the company’s overall value rather than just the sale price.

Preparing for a valuation

Choosing a valuator

Valuation isn’t an exact science, and different evaluators can arrive at varying results based on their methods and assumptions. Here are some tips for selecting a business valuator.

Consider whether a valuator is necessary

Not all business transitions require a formal valuation. Banks often conduct their own assessments when financing an acquisition. For smaller businesses or sales within a family, an experienced accountant may be able to provide a reasonable estimate of the company’s value. However, if parties in a transaction can’t agree on a fair price, a professional valuator may be useful. A bank might also request an external valuation if there’s an expectation of significant changes in future earnings or cash flow, or if they have concerns about the business’s financials. Fees for valuators typically vary based on the size and complexity of the business.

Look for experience and reputation

It’s important to choose a valuator with experience in your industry and someone you feel comfortable working with, as you’ll be sharing sensitive business information. Ask your accountant, lawyer, or others in your network for recommendations. It’s also wise to consider someone with a Chartered Business Valuation (CBV) certification.

Consult transaction partners

If a bank requested the valuation, they may favor reports from well-established firms and could have a preferred list of valuators. In the case of a business transfer, selecting a valuator that both parties agree on can help prevent conflicts or the need for competing valuations.

Different levels of valuation

The first step in a valuation is deciding the level of complexity and assurance required for the valuation report. Valuators can provide three types of reports, with the level of detail and accuracy increasing alongside the cost.

1. Calculation Report
   This is the most basic type of valuation report, offering limited details—such as a brief breakdown of sales data. It’s typically used for initial valuation assessments, for example, when considering the purchase of a business.
2. Estimate Report
   This report provides a moderate level of detail and greater assurance than a calculation report. It generally includes some review and verification of the company’s information and may break down sales by service line or division. Estimate reports are often used for acquisitions.
3. Comprehensive Report
   A comprehensive report offers the most in-depth analysis and the highest level of assurance. It includes a thorough review of the company’s data, market and economic research, and detailed financial breakdowns. This type of report is common in complex acquisitions or cases involving litigation or regulatory scrutiny.

• Summary
• Preparing for a valuation
  • Choosing a valuator
  • Different levels of valuation
  • What information will you need to provide?
• Valuing a company
  • 3 most commonly used valuation approaches
  • Income-based approach
  • Market-based approach
  • Asset-based approach
  • Valuing intangible assets
  • 5 valuation mistakes to avoid
• Price and value
  • Why does value differ from price?
  • 4 factors that can move the price away from value

Number of Pages:

• 14 pages

Pricing: 

• Free