Valuation – How Much is Your Company Worth?
Spring is pleased to have Mary Gamble of iValue Solutions Consulting provide a guest post on Business Valuation.
You may be planning to sell your company, and possibly retire. You may be considering purchasing someone else’s company, and making it your own. You may be taking on new shareholders, merging, or even divorcing your personal or business partners.
All of these lifetime events create a number of uncertainties for business owners. No matter what side of the table you sit on, everyone would like to have a clear understanding of the company’s Fair Market Value.
Here are a few common questions that I am frequently asked as a Chartered Business Valuator:
Why does a Purchase Price sometimes differ from the Fair Market Value?
A purchase price could differ from the fair market value based on a number of factors, including:
- The negotiation skills and expertise of the buyers and sellers;
- The structure of the sale;
- How the purchase price is paid;
- Other potential factors that can be buyer specific benefits, such as economic benefits and cost savings opportunities.
What types of things does a Chartered Business Valuator look at?
When determining the Fair Market Value, including commercial goodwill of a company, a Chartered Business Valuator will take into consideration the following:
- Management team and staff continuity;
- Quality of customers/clients;
- Choice of suppliers;
- Company history;
- Service & product types;
- Contracts the company holds;
- Revenue streams and model;
- Discretionary cash flow, earnings, EBITDA;
- Intellectual property and technology
- Internal controls
- Any requirements for continued capital expenses
- Capital structure and debt
- Tax matters such as loss carry forwards and depreciable assets
What does a Chartered Business Valuator adjust from the operating income?
Any non-recurring or one-time expenses will be adjusted from the operating income. Compensation or business transactions that primarily benefit the owner or other non-arm’s length parties such as children and spouses will be normalized – i.e. if they wouldn’t happen in the normal course of business, they will be added back from the operating income.
What does a Chartered Business Valuator do with the non-operational assets?
Redundant assets, which are those that are not directly related to the operations, will be considered an additional value for the company.
Is the timing of a valuation important?
Yes. While a business valuation is prospective, taking into account future growth and possibility, it is based on a set of facts at a particular point in time. If the company experiences material changes after the date of the valuation, an update should be considered to ensure you’re working with the right numbers.
Mary Gamble, MBA, CPA, CGA, CBV, FCCA (UK)
iValue Solutions Consulting