Valuations

Why not use tax forms instead of an independent valuation?

Most business owners use tax returns or financial statements prepared for tax purposes as the basis for the financial presentation of their business. As a result, the market value of assets are not reflected because of depreciation or acceptable deductions that are written off for tax purposes. While this may be good for tax purposes, they do not reflect years of hard work in accumulating business assets. The business goodwill or intangible value, which represents a major component of what the business is worth, is not a consideration for income tax purposes and, therefore, not addressed in financial statements for tax purposes.

Can a business owner truly know the market value of his business?

During the past twenty years, it has been our overwhelming experience that often the seller considerably undervalues his business. A real-life example: a manufacturing company sold in the last year was valued at $30 million, and in fact, it later sold for approximately $30 million. After the closing, it was learned that the seller and his CPA had originally thought the business was worth "about $17 million". - How could their opinion of value have been so far off? Well, neither the owner nor the CPA had any valuation training nor were they valuing businesses nationwide on a full time basis. Additionally they were not trained in selling businesses, so their experience was very limited. Consequently, they were unable to assess the supply and demand for this type of business in the market place.

Which are the greatest benefits of a independent valuation?

First, it will ensure that the business is not undersold. Secondly, our detailed, 50 page analysis will convince a buyer that we have a valid reason for a particular asking price. Thus, the business is not overpriced, with many buyers reading the prospectus and then aborting the acquisition due to overpricing (potentially compromising confidentiality in the process). And thirdly, with a valuation documentation in place the buyer’s lender will typically approve a loan considerably faster.

How do valuation expenses compare ?

To establish audited financial statements by a reputable CPA firm typical costs in excess of $15,000 with another $30,000+ due to obtain a qualified valuation. Due to our large volume of valuations, we have the benefit of drastically lower costs among the five national valuation firms we utilize.

And even though a valuation still might appear costly, the potential benefits far out weight its cost. By erroneously undervaluing your business, you could lose thousands of dollars. Without a solid analysis, you will need substantially more time in selling your business - many buyers will simply not look at your business, others will engage you into long price discussions, all along while lenders will take more time in approving a loan.

The Smart Business Approach

It is critical to determine the purpose of a business valuation. This determination shapes the choice of valuation method(s) to apply, because different approaches and concepts may be more appropriate for different purposes. A Business valuation is essential under various circumstances:

Sell your business at the Fair Market Value

Provide a lender with Fair Market Value information for a business loan

Plan for a merger, acquisition or stock offering

Develop an estate plan or tax plan to protect your wealth

Transfer of the business into a trust or create a succession plan

Determine the value of assets and liabilities for a divorce settlement

Assist attorneys in litigation

Settlement of an insurance claim

Set up an Employee Stock Ownership Plan (ESOP)

A Neumann & Associates utilizes the services of five different national valuation firms to provide buyers and sellers with estimates of Fair Market Value. Each of the firms’ database, which is used in valuing businesses, has been developed through thousands of valuations for business owners, business brokers, financial consultants, and lending institutions. Placing the right value on your business is essential.

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