A professional valuation from a Dallas business broker is a great way to determine the market value and overall worth of your business. In this review, we discuss everything business owners in Dallas (and the surrounding areas) should know about a professional valuation, including what it is exactly, the different types, what is included, and when you should consider receiving one. Specifically, we focus on why a professional valuation from a Dallas business broker is important for business owners.
What is a Professional Business Valuation?
A professional business valuation is an assessment of your company’s worth. The valuation is largely determined by financial metrics, such as your gross profit, seller’s earnings, and asset value. However, other factors such as growth projections and potential, geographic location, workforce quality, reputation, and the owner’s reason for selling also play a role in a company’s value.
What are The Different Types of Business Valuations in Dallas?
There are many types of business valuations business owners in Dallas may use. Common types include a market approach, asset approach, income approach, and owner benefit approach.
A market approach is the most common method. This involves an assessment of recently sold companies in your industry (via rule of thumb data). The Dallas business broker then determines how your company compares with and performs relative to other companies that have been sold. Specifically, the business broker may apply rule of thumb data to these types of financial metrics:
- Earnings before interest, taxes, depreciation, and amortization (EBITDA)
- Seller’s discretionary earnings (SDE)
- Gross profit
- Net Sales
There is also an asset approach. This valuation method primarily looks at the worth of your assets. This, in essence, determines how much it would cost to recreate the business based on its net asset value (NAV). An asset approach is not typically used for mergers and acquisitions. However, it may be used later in the sales process to complement the market approach and further inform the buyer of the company’s overall value.
There is also an income approach. This focuses on your revenue, expenses, tax liabilities, and other financial metrics to determine the worth of your business. It may also take into consideration future income projections as a part of the analysis. Lastly, there is an owner benefit valuation. According to BizBuySell, the owner’s benefits amount is the total dollars that you can expect to extract or have available from the business based upon what the business has generated in the past.
What Does a Business Valuation in Dallas Include?
A business valuation in Dallas should be much more than a simple opinion of value. Instead, the Dallas business broker should look closely at the financial performance of the company as, projections for the future, and non-financial information. They should also provide recommendations on whether or not the company is best to go to market right away or wait and improve value before seeking a buyer. Notably, your business valuation should include the following:
- Historical records review – This includes 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.
- Real estate appraisal(s) review – This is necessary if you own any real estate that is included in the sale. Your broker may also take a close look at your rental lease agreements if you rent any commercial property as well.
- A review of non-financial considerations – A good valuation goes beyond simply calculating your EBITDA and SDE and applying these metrics to rule of thumb data. Instead, your business broker should also consider non-financial factors such as growth potential, location, workforce quality, customer concentration, industry trends and demand, and the owner’s reason for selling.
- A recommendation to improve value and sales strategy – Some of the best Dallas business brokers also include a recommendation to the business owner on how they can improve their company’s value before they sell, ensuring they get the most and sell for fair market value. Additionally, they may provide a recommendation on how to sell effectively, laying out the various steps that should be included.
Who Needs a Professional Business Valuation From a Dallas Business Broker?
Every business owner should have an understanding of how much their Dallas business is worth. Therefore, if you have never received a professional valuation, then we recommend contacting a trusted Dallas business broker to receive one. With that said, there are certain situations where a valuation is strongly recommended (or possibly required). Notably, you should receive a valuation for the following reasons:
- Mergers and acquisitions
- Succession planning
- Estate and gift taxes
- Buy/sell agreements
- DivorceKey person insurance
Mergers and Acquisitions
A business valuation is essential if you are selling your company. Whether an existing company is absorbing your business into its own or purchasing your company to operate it as a sole entity, you must know your value on the market. A market approach is recommended, which calculates your company’s fair market value.
Your business should also use a Dallas business broker if you are passing down your business to a family member, employee, or someone else. This is important for handling tax issues, allocating value, and assessing your company’s financials properly before you pass the torch.
Estate and Gift Taxes
You may need a business valuation if you are filing an estate tax return. Additionally, you should receive a professional valuation from a Dallas business broker if you are drafting your will and need to provide guidance to a personal representative. You should also order a professional valuation anytime you are dealing with a gift tax as well. This helps ensure you are not paying more than necessary in gift taxes.
A buy/sell agreement is a great way to minimize tax obligations and ensure your family is protected financially if you decide to retire or pass away unexpectedly. However, to ensure you receive full value for your company in the event you implement a buy/sell agreement with one of your business partners, you should order a professional valuation from a Dallas business broker, who can provide an objective and accurate assessment of your company’s worth. In particular, this involves an accurate assessment of the worth of your stock in the company.
You will likely need a business valuation from a Dallas business broker if you reside in the Dallas area and are going through a divorce. Specifically, this is often necessary when dividing up the marital estate. In some cases, both spouse members receive their own separate valuation. In other instances, they may work together for a collaborative valuation. Whatever the case may be, a professional valuation is a great way to determine the worth of the company and ensure both you and your spouse properly divide the estate upon divorce.
Key Person Insurance
A business valuation may also be necessary if you (the business owner) or another member of the company has taken out a life insurance policy in your name; this is known as key person insurance. In this case, knowing the worth of the company is vital.
Contact Our Dallas Business Brokerage for a Free, No-Obligation Business Valuation
Sigma Mergers and Acquisitions offers free business valuations for business owners in Dallas and the surrounding areas. We also have office locations in Fort Worth, TX and Houston, TX. With more than 600 businesses sold and 20+ years of experience, we can help you receive full value for your company in a sale.
Sigma Mergers & Acquisitions sells businesses valued between $1 million and $100 million. We have helped sell 600+ businesses over the past 20 years. We charge NO upfront fees ever, and you pay us only when we sell your business for a price that meets YOUR goals.