Tuesday, October 2, 2012

Buying or Selling a Business? Here's What to Look For in a Business Valuation

Are you considering selling your company or buying a company?  Do you need to value a business for an estate, divorce, or for estate planning?  An expertly prepared business valuation report may prove to be a very valuable investment.  

GET VALUE  It is essential that your valuation expert has significant experience in business purchase and sale transactions. No amount of study can replace real world experience.  We have been valuing businesses for ten years, and providing business consulting to our clients interested in buying or selling businesses for twelve years.  Brian Murray is an expert in business valuation, has been recognized as a Certified Valuation Analyst (CVA) by the National Association of Certified Valuation Analysts, and has given expert witness testimony in depositions and court.

WEALTH DRIVERS  In addition to revealing the value of your business as of a certain date, a valuation report can expose key drivers of value that may help you maximize your company's worth.    

For example, one company's key driver of value may be the consistency of its earnings stream and the strength of its balance sheet.  If management should decide to make an aggressive investment in advertising in an attempt to grow the company shortly before the sale, the company value may actually be reduced by the interruption of cash flows if the benefits of the advertising have not yet materialized.

In another case, a valuation report exposed that a company's value was deminished due to increased risk caused by a substantial amount of their sales being derived from a single customer.  Company management responded by aggressively diversifying their customer base.  Even though the sales to the new customers were made at slightly lower margins than those to the larger customer, the company's value was greatly increased due to the reduction of risk perceived by investors.

After analyzing another company we found its key driver of value was consistent annual growth in sales and cash flows.  After learning this we advised management to maintain this growth rate.  As a result, the company management chose not to sell business units which would have caused total company revenues to fall. Ultimately this company was sold at a price that was principally based upon the company's consistent growth rate.

GET MORE THAN FAIR  Often a company may have value to a particular investor, or type of investor, that is higher than fair market value.  This additional value is called synergistic value, or strategic value.  Our experience in merger and acquisition transactions and contacts with corporate buyers and private equity groups helps us identify those strategic opportunities.  After those strategic opportunities are identified, we develop a profile of the ideal strategic buyer, estimate the cash flows they would derive from the acquisition, and determine the strategic value based on those additional cash flows. This information can prove to be very valuable in negotiation.

Brian Murray CPA/ABV, CVA specializes in business valuations and merger and acquisition consulting, and has served as an expert witness in court.  Please call Murray & Roberts CPA Firm SC at (920) 225-6436 to find out more or visit our website www.murrayrobertscpa.com, and click on the BUSINESS VALUATION link.  Go to www.mycompanyvalue.com now for a fast and affordable business valuation report prepared by Brian Murray.

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