To put it simply – a business valuation determines the economic value of a company. This process is used to determine how much a business is worth, based on an estimate by an unbiased third party.
Estimating the value of a business is both a science and an art. There are several formulas and models that can be used, but ultimately the valuation results depend on many factors.
A business valuation can include an analysis of a company’s management, its future earnings prospects, its capital structure, the market value of its assets and so much more. Also, the value of a business is impacted both by what a business is able to do in the future and what it has done in the past.
An accurate business valuation is essential for succession planning. Passing down your business will include several complicated issues, such as how to allocate value and tackle tax issues. You’ll want a thorough valuation so you can assess your company’s financials and determine its position in the market.
A business valuation might be necessary not just to file an estate tax return, but to provide guidance to a personal representative when fulfilling the terms of a will. If you are effecting a gift to minimize your estate tax, this will often require the valuation of your business.
Business valuations might also be necessary for businesses to develop buy/sell agreements. These types of agreements may be important for tax or business purposes. A buy/sell agreement will allow the owner of a business to acquire the interest of another owner - if the owner passes away or decides to retire.
A business valuation is absolutely essential for mergers and acquisitions. Many business owners are uncertain (or unrealistic) about what their businesses are currently worth. It’s crucial to use an objective, transaction-based method of estimating the fair market value of your business.
If you are a business owner going through a divorce, a valuation of your business may be required in order to divide up the marital estate. Sometimes both sides will obtain separate valuations, but in many cases there may be a collaborative divorce where both parties work together with a single analyst.
A business owner might also get a business valuation in order to determine the value necessary to over their business interest value if anything happened to them. This is known as “key person” insurance and is paid out to the owner’s family to allow them to continue the role or buy themselves out of that role.
There are many different types of business valuations out there. Each one is slightly different and the best one for you will depend on the type of business you have and what your objectives for getting the valuation are. For example, some of the different types include asset valuation, owner benefit valuation, capitalization of income valuation and market valuation. Not sure which one is right for you? Contact us and we can help.
At Sigma we pride ourselves on a valuation model that is proven to provide excellent results to sellers. While each business valuation does require different information, typically we look at your historical records, including your business tax returns for the last three years, your interim profit and loss statement, your average value of inventory of saleable product, your equipment list and your lease information. We also look at any real estate appraisals that are available, if real estate may be included in the sale. In addition to this, we will also look at up-to-date comparable statistics from our own sales and transactions - as well as those from other brokers across the country. But that’s not all - once we have assessed the value of your business we will also provide you with actionable steps you can take to make your company more attractive to potential buyers and increase its value.
To put it simply, fair market value is an estimate of the market value of your businesses. In other words, what a willing, knowledgeable and unpressured buyer would likely pay to a willing, knowledgeable and unpressured seller in the market.
Here are some of the important steps you can take to prepare for a business valuation:
● Determine why you need a business valuation, as the approach to the valuation will depend on why you are having your businesses assessed.
● Gather the important documents required for the business valuation. You’ll need well-documented financial statements and tax returns in order to demonstrate the earning power of your business.
● You’ll also want to provide a customer list to show where your business gets its revenue. (If your business has many customers rather than a few large customers, it will command a higher selling value.)
● It’s also a good idea to conduct market research so you have a better understanding of your industry before you sell your business.
When it comes to evaluating the assets of your business, you’ll come across both tangible and intangible assets. Tangible assets have a physical existence and can be felt and touched. This could include buildings, furniture, computers, equipment, vehicles, etc. Intangible assets are those that cannot be felt or touched. Some examples include patents, trademarks, the brand name, customer data, social media presence, etc. It’s much harder to determine the value of an intangible asset. However, sometimes an intangible asset can be much more valuable to the potential worth of the company.
Are you looking for a professional firm to list and sell your business? We can help. The Free Market Approach package includes a valuation of your business for the purposes of considering a business sale, and our expert support throughout the selling process.
Looking to partner? Have your own buyer? Just need our help with the valuation? This is the option for you. The Fee-Based Market Approach gives you a market valuation fo your business. Our fee for this package is based on the size of your business.
Need a business valuation for estate planning or IRS purposes? This option is specifically suited for these situations. A Certified Business Valuation provides you with a detailed analysis designed to hold up against the most intense scrutiny. Our fee for this package is be based on the size of your business and the purpose of the report.
Sigma prides ourselves on a valuation model that is proven to provide stellar results to sellers while providing complete transparency during every step of the process.
Interested in getting a realistic business valuation for your Dallas, Texas, Fort Worth, Texas or Oklahoma based business? Fill out our Business Valuation form to schedule a free consultation and business valuation.
Sigma is a the leading business broker in with Corporate offices in Dallas/Fort Worth with roots from 1984. Over 600 businesses sold in Dallas, Fort Worth, Texas, Oklahoma and across the South. Sigma provides full business brokerage services with NO upfront fees. We provide Market approach business valuations for business sales. Sigma is passionate about helping business owners achieve their goal of financial security. Contact us today for a free no obligation business valuation. We are here to help you achieve your goals.