Determining Value for Your Business

 

3 Basic Approaches

There are three broad approaches to valuation: Income, Market, and Asset. Within each approach there may be many different methods that must be considered. After careful consideration of the relevant factors, a reconciliation of the related approaches is performed to determine which approaches are most relevant to the purpose of the appraisal assignment.

Income Approach

In its simplest form, a business is an income-producing entity. The income approach places a value on the expected future income while compensating for risk.

Asset Approach

The asset approach basically just places a fair market value on the assets of the business. It is usually used in liquidation or with companies that are asset intensive, but have poor financial results.

The Valuation Process

The Market approach uses information based on actual transactions of similar and relevant companies. When you use Buy Sell Lease you can be assured that the valuation process will be handled professionally and confidentially.
A true test of accuracy and validity of any valuation is the price at which a company would willingly change hands in the marketplace.

Science and Art

The valuation of a privately owned company is both science and art. Since no two companies are exactly alike even within the same industry, trade, or service, there is no one formula or method that is all-inclusive.

Multi-Method Approach

Buy Sell Lease uses a comprehensive, multi-method approach that considers relevant factors that are unique to a particular company including: company history and longevity, future economic outlook, tangible asset value, intangible asset value and industry ratios.

Additional Factors

Also considered are factors such as historical net cash flow, probability of continued profitability, risk competition, technology changes, ownership transition training, owner non-compete and consulting agreements, as well as working capital requirements. There are many reasons to value a company. Whether it is for an anticipated acquisition or divesture, a partnership buy-sell agreement, stockholder concerns, marital dissolution, or estate planning, a professional valuation makes a world of difference. Since there are many reasons to value a company, there are many different levels of valuation services. From a simple target value for selling your company to a complex IRS-rated valuation, Buy Sell Lease can handle the assignment internally or by working with independent third parties.

Risk impacts value!

Risk impacts value! Risk is defined as "the degree of certainty or uncertainty as to realization of expected future returns" Risk takes many forms in mid-size business: size of company, depth of management, reliance on key personnel, company specific concerns, industry trends, and to a great extent available return on alternative investments (stock market, bonds, t-bills, etc.)