Important Notes: We can complete your business Valuation only after adjusting or normalizing your financial statements. The Valuation depends on the profitability of your business. The true profitability can be determined only after we normalize your financial statements. We finalize the adjustments with you during our Assessment phone call. Once that happens, we then show you the live version of your Valuation.

Our Process for Valuing a Business

Your Valuation is based on both qualitative and quantitative factors. We must examine both sets of factors before arriving at the estimated value of your company. Correctly determining the value or range of values for a company takes time since dozens of qualitative and quantitative factors must be taken into consideration.

Understanding the value of your company also requires examining how your business compares with others in its industry, including growth prospects and risk factors. One seemingly small factor, such as excessive customer concentration or declining revenues, can impact the value of a company by more than 50%, so a thorough investigation is paramount.

Below is our process for valuing a small to mid-sized company:

1. We first request financial statements from you, generally three years of profit and loss (P&L) statements and monthly revenue for the past three years.
2. We send you a questionnaire that we have designed to identify the factors that can positively or negatively affect the value of your company and help us gain a complete understanding of your business.
3. Once we receive your financial statements, we “spread” the numbers (put them in our internal spreadsheet so we can analyze them). This helps us spot trends in your business that may negatively or positively impact your company’s value. We also prepare a comparative P&L statement that enables us to analyze the normalized P&Ls from year to year to identify trends and any inconsistencies in your business.
4. We then normalize or adjust your financial statements based on the adjustments you have provided. Once you send us a list of adjustments, we review and verify them for accuracy and discuss with you which adjustments are allowable and which are not.
5. Next, we put the finishing touches on our financial model and send it to you for review.
6. Finally, we discuss the spreadsheet, the multiples, and the factors that can affect the value of your company. The purpose of our discussion is to ask several follow-up questions so we can put the finishing touches on your Valuation and finalize your adjustments. We’ll use this information to walk you through the possible range of values for your business and help you fully understand the factors that can affect the value of your business. Our goal is not just to provide you with a number but also to provide you with a thorough understanding of the valuation so that you will know why your business is worth what it is and what you can do to increase its value.

Here are the benefits of this approach:

• You will gain a firm understanding of the range of factors that can affect the potential value of your company.
• You will understand the range of possible values for your business, from low to high.
• You will view the changes we make to your Valuation model live, allowing you to see the potential impact that individual changes can have on the value of your business.
• You will be provided with a list of recommendations to improve your business’s value.
• You will understand aspects of your business that buyers may see as deal-breakers.
• You will learn about areas in your business that can be strengthened and receive a list of actionable steps you can take to maximize the sales price.
• You will gain a clear understanding of any “gap” between what your business is currently worth and its potential worth.
• You will gain an understanding of the value of your business at a deeper level, which can help you crystallize your decision to sell or help you decide to hold off and prepare your company for sale in the future, thus increasing its value.
• You will benefit from a process based on how buyers value businesses in the real world.

FAQs

• How is a buyer going to value my business?

  Most buyers value a business based on a multiple of the seller’s discretionary earnings (SDE) or EBITDA.

• Can you give me an idea of the asking price before we adjust my financial statements?

  No, the valuation of your business depends on the amount of profitability after the adjustments. Therefore, we can value your business only after we adjust, or normalize, your financial statements.

• What should the price include?

  The price should include anything used or needed in the business to create the cash flow or profit that the business is generating.

You may also find the following articles helpful:

• Business Valuation Methods in a Nutshell
• Business Valuation Basics: 9 Critical Concepts to Understand
• Business Valuation Standards of Value & Fair Market Value
• Why is the Range of Possible Values so Wide for a Business?
• The Difference Between Valuing Public and Private Businesses
• Do Buyers of Businesses Pay for Potential?