Value a Business

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At Morgan & Westfield, we are specialists in selling businesses and have had decades of experience in business sales. This experience is important when it comes to valuing a business with the intent to sell your company. Companies that specialize exclusively in business appraisals often do not have an in-depth understanding of buyer’s needs and wants. Having this knowledge is paramount in pricing your company to sell.

At Morgan & Westfield, the majority of our in-house valuations are prepared for individuals or companies who wish to know the worth of their company for the purpose of selling it. For court-ordered appraisals and any other appraisal not relating to selling a business, we contract with third parties at discounted rates. We perform the field work directly, assisting with data gathering, questionnaires, financial statement normalization, and the other tasks involved in appraising a business, and then jointly work with the company to finalize the appraisal.

Whether you would like a business valuation to assist you in preparing your company for sale, or are required to obtain a court-ordered appraisal, we can help you, and often for rates much lower than our competition.

If you are thinking of selling your business, then you should seriously consider valuing your business. By valuing your company, you greatly increase the chances of selling your company and often at a much higher value.

The Importance of Valuing Your Business

  • Getting a professional business valuation shows buyers that you are serious about selling your company. Many buyers quickly tire of sellers who are testing the waters and are not adequately prepared. By obtaining a valuation, you clearly communicate to potential buyers that you are not only motivated and serious about selling your company, but have also taken the necessary preparatory steps in selling.
  • Obtaining a valuation often increases the selling price of your company. Because the science of business valuation is likely a confusing subject to most buyers, having either an independent third party or an experienced professional value your company makes the buyer feel more comfortable in paying your asking price.
  • Companies that obtain a business valuation typically sell faster than companies that do not. Why? Companies that have prepared for the sale and have had their business valued sends the message to the buyer that the information needed for due diligence is not only readily available but can also be relied upon. This often shortens not only the length of due diligence, but also makes negotiations run smoother and quicker.
  • Having your business valued will increase the likelihood that it will sell. The number one deal killer relates to a company’s financial statements. By getting your business valued, you force yourself and the valuation company to perform a financial due diligence upfront, which will likely uncover problems that would derail most deals during due diligence. By uncovering these problems upfront, you have the ability to solve them before placing your company up for sale.

Steps in Business Valuations

Step 1: Preparation

It is necessary to first obtain an in-depth understanding of your business and industry before beginning any valuation assignment. We conduct in-depth interviews with you to understand the nuances of your business – discussing staffing, your location, the value of your equipment, competition, financial trends, availability of information, and more.

Step 2: Financial statement normalization

Financial statements are the basis of nearly all business appraisals. Because most valuations depend on some form of comparison, whether it is a comparable transaction or using a multiple, your financial statements must be “normalized” or “recasted” so consistent results are obtained. Financial statement “normalization” or “recasting” involves normalizing either excessive or underreported expenses or revenues in your business so that your company can be compared to its peers. For more information on this topic, please visit our blog.

Step 3: Defining the valuation methods to be used

While there are three primary methods of valuing a business, there are literally hundreds of variations and nuances of each method. Depending on the industry, the availability of information, the time available to perform the valuation, and the purpose, the proper methods and weighting of methods must be chosen. For example, if a service business is being valued with the intent to sell, then it is likely that a multiple of discretionary earnings be used. Methods based on the value of hard assets would not be used because the business is not asset-intensive. They may be used, however, for validation purposes. If comparable transactions are not available, then the valuator may have to choose a variety of income approach methods.

Step 4: Applying the business valuation methods chosen

Once your financial statements have been prepared and the methods have been chosen, then the individual methods must be performed, resulting in either a specific value or a range of values for each method used. By using more than one method, the valuation is validated and can be defended, whether to a buyer or a professional, such as an attorney or accountant.

Step 5: Reaching the value conclusion

After the individual methods are applied, the valuator must review each individual conclusion and apply proper weighting to reach an overall specific value or range of values. The value of your business may also depend on other consideration, such as availability of financing and current market conditions. These additional factors are taken into consideration in preparing the final valuation.