There are many reasons business owners need a business valuation. Estate planning, partnership splits, refinancing, recapitalization or divorce are just a handful of scenarios where business valuations are needed. Another tremendous and underutilized use of business valuations is a current snapshot of a business value in the buy/sell market place. The information is often priceless in improving profitability, salability and value. Even the slightest improvement can have an enormous impact on the true market value of a business.
“A certified business valuation by a third party is the only way to accurately determine true market value”, says Michael Feite, Managing Director, Eastern Pennsylvania. “ Business valuations are a crucial part of a business transfer transaction. Not only do they help set an asking price for a business seller, they also justify a sales price to a buyer, and the buyer’s respective bank financing the acquisition. Without a business valuation up-front, a buyer will not take the seller serious and certainly will not make a fair offer.”
“An increasing trend is for savvy business owners to obtain a certified business valuation to analyze their current standing,” says Steve Wrubleski, Managing Director, South Jersey, “they then use this to make business improvements to increase the value of their business.”
So now that we have addressed the benefits of a certified business valuation, let’s look at what drives value. Value drivers are key elements that build or protect value of a business. These value drivers are crucial in determining current and future value as well as salability of a business. Buyers thoroughly analyze these value drivers that impact their risk, comfort and confidence. For example, a high dependency on a single customer, reliance on key employees, non-predictable revenue streams are all factors that impact a value driver.
Due to improper preparation, only a small percentage of businesses can and will sell. Savvy business owners get a business valuation well ahead of the planned exit time in order to make early adjustments and to improve their business. This gives them an objective look at their business and value drivers early on in their planning process. A typical list of value drivers includes
- Historic Growth
- Profit and Margins
- Customer Diversity.
- Employee Diversity
- Industry Environment
- Product & Service Mix
- Macro Economic Market Trends
- Financial Condition
- Five to Ten Year Projections
- Outside Risk Exposure
For a thorough discussion and to learn more about business valuations and value drivers, please contact any one of the firm’s managing directors.
A Neumann & Associates, LLC is a professional merger & acquisition and business brokerage firm with 30 years of experience in New Jersey, New York, Pennsylvania, Delaware and Maryland that assists business owners and buyers with the business transfer process in a completely confidential manner. The company is affiliated with BBN, with 450 offices and access to a national network of qualified buyers and sellers. For more information, please contact A Neumann & Associates at 732-872-6777.