Valuing Your Company
Almost every company owner contemplating selling or exit planning begins by wondering what's my company worth?
In general, the value of a business is equal to the present value of the future benefits of ownership. The basic valuation process is illustrated by the pyramid below, reading from the bottom upwards.
Buyers acquire the continuation of a proven earnings stream (and/or projections, in some cases) the business is what provides it. Value is related to:
Tangible and Intangible Assets
Many companies may have significant value tied up in tangible assets such as production equipment, vehicles, real estate or inventory. However, the primary value of a healthy, profitable, private company usually resides in the intangible assets such as the value of the trade name, reputation, vendor, distribution channel and customer relations, customer list, and so forth.
The difference between the sale price of a company and the fair value of its tangible assets is called "goodwill." This difference indicates the ability of the intangible assets to earn profits, or value that cannot be assigned to the physical, tangible assets. It is for this reason that companies with strong brands command a higher price than companies with weak brands.
The valuation process attempts to project a likely sale price for the company, including the fair value of its tangible assets + the projected goodwill value.
Internal and External Analysis and Risk Assessment
The following are only a few of the factors that will be considered when establishing the value of your company. The market analysis of the process is very important to help forecast the risk of future earnings continuity, and we employ multiple resources such as subscription research databases and reports to assess the industry.
- Macroeconomics - The condition of the overall economy may have a profound effect on the value of your business. To illustrate, the value of a tourism-dependent business would be adversely affected by a downturn in the economy leading to a forecast of reduced tourism. The growth in your company's industry is an important factor.
- Patents, Proprietary Business Processes, Strong Brand - Items of this nature may have a profound effect on value, and may take special analysis to assess.
- Customer Concentration - Companies in which few customers account for a large proportion of revenue or profit present high risk � the loss of only one customer may present problems.
- Competitive Intensity - The competitive intensity of the market(s) in which your company competes has a direct bearing on profit potential.
- Management Team - Having a trained management team that can run the business without the owner(s) day-to-day involvement adds value.
- Historical Performance - Volatility and past growth are important considerations for buyers.
Valuation Approaches and Methods
We employ various methods within the three approaches to valuing companies (Asset, Income & Market) to reach a conclusion of value consistent with industry best practices.
The conclusion sets the stage for establishing a strategy for taking your company to market.
Untitled Document
|
For Sellers 
