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The chart on your left illustrates a real-life example of why a business valuation is so important. A few years ago, we valued a
manufacturing company at $30 million, and in fact, it later sold for approximately $30 million. Later, after the closing, we
learned the seller and his CPA had originally thought the business was only worth "about $17 million." Now, the question that you
are probably asking yourself is: How could their opinion of value have been so far off? The answer is: Neither the owner nor the
CPA had any valuation training nor were they valuing businesses nationwide on a full-time basis. Additionally, they were not involved
in the sale of the businesses, so their experience was very limited. Consequently, they were unable to assess the supply and demand
for this type of business in the marketplace. Our experience shows that a professional business valuation is one of the keys to achieving
your goals. Without one, value can vary significantly. The Seller should consult with a professional intermediary to assist in the valuation
process.
EBIT uses the services of a third party business valuation company to perform its valuation reports. The third party
valuation company used by EBIT is the largest third party valuation company in North America. The company performs
thousands of business valuations each year. They have the largest database of closed transactions in the nation, and
know what the price of other businesses like yours are really producing. Their reports are reader friendly and should
be shown to prospective buyers. They go much further than other reports because they recommend which
assets to sell and which to keep. The same is true for the liabilities of the business.
The key to having a viable valuation performed on a business is to have it performed by an independant, third-party service.
Without a third-party report a business owner should be prepared for heavy negotiations because it will be your opinion of value versus a buyer's
opinion.
The value of a business is related to the risks involved in operating it and the future ability of the business to generate cash flow to the owner
(cash flow is calculated from an economic viewpoint, rather than from a tax or an accounting perspective). The value of the underlying hard, tangible
assets as well as intangible assets also must be considered.
An expert valuation report is based upon standard and acceptable valuation methodology - produced by an expert with years of proven experience, gained
by successfully completing thousands of valuations on all types and sizes of businesses in many diverse industries across the U.S. The specific purpose
of the business valuation and the size of the subject company determines the depth of analysis and the amount of research required to deliver a credible
estimate of value.
The valuation process involves extensive research, financial analysis, and consideration of the elements that drive the value of the business.
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