Business Valuation Process

Exit Strategies applies a time-tested 4-phase process in valuing your company

Business Valuation Process

Phase 1.  Propose the Right Level of Service

Client needs vary and every business is unique, so we start with a conversation to understand:

  1. The intended use of the business valuation
  2. Who are the intended users?
  3. Business: description, name, owners, location, entity type
  4. Financial highlights: revenue, earnings, trends, major assets & liabilities
  5. Interest to value: 100% or fractional (if fractional: capital structure, key shareholder agreement terms)
  6. Whether real estate or asset appraisals may be needed
  7. Appropriate valuation date
  8. Appropriate standard of value
  9. Appropriate scope of analysis
  10. Appropriate type of report
  11. Who is our client: company, shareholder(s), attorney, CPA, bank, etc.
  12. Access to business information
  13. Any unique circumstances to consider
  14. Deadline or desired time frame

Once we understand this information, we can provide an engagement letter.

Phase 2.  Conduct Research and Analysis

When engaged, we can go to work:

  • Compile requested business documents
  • Provide questions and/or schedule a management interview
  • Visit the business, review operations, conduct interviews
  • Review and synthesize business information
  • Research/analyze the industry in which the business operates, and obtain relevant data
  • Study economic conditions as of the valuation date and their effect on the business
  • Analyze company financial data:
    • Enter 4-6 years of financial statement detail
    • Reformat financial information
    • Ask financial-related questions
    • Make various normalization adjustments
    • Analyze financial condition, performance and trends
    • Calculate relevant financial ratios and examine trends
    • Compare performance to the industry
  • Identify and assess business value drivers and risk factors
  • Analyze management’s financial forecast and assumptions and/or develop a forecast
  • Resolve questions that arise regarding financials, adjustments, operations, projections, etc.
  • For minority interests, evaluate the risks, privileges and restrictions on the specific interest being valued

Phase 3.  Apply Business Valuation Methods

In this phase, we consider possible business valuation methods and select those most likely to yield meaningful value indications:

  • Market Approach:
    • Determine guideline company criteria
    • Research and collect public and/or private guideline company transaction data
    • Analyze guideline company similarities and differences; refine
    • Statistically analyze and calculate appropriate market multiples: price/earnings, price/revenue, price/book value, etc.
    • Select the best multiples and calculate value indications
  • Income Approach:
    • Select appropriate methods: discounted cash flows, excess earnings, one or more capitalization methods
    • Apply these methods using appropriate benefit streams and costs of capital
  • Cost Approach:
    • Adjusted Book Value or Liquidation Value
    • May require separate real estate or equipment appraisals
  • Apply appropriate premiums and discounts to the above results. For minority interests, consider control and marketability attributes.
  • Reconcile all valuation method results and decide how much influence each should have in the final conclusion
  • Test the reasonableness of the value conclusion

Phase 4.  Produce the Report
  • Write the report in the agreed upon format
  • A full report presents all relevant facts, explains all analyses and procedures, and supports decisions made
  • Review, edit, proof-read and finalize the report
  • Deliver the report to the client

[NOTE: The above describes a full scope valuation engagement. Limited scope engagements generally omit or limit some of the above procedures.]

Free Confidential Consultation

Call one of our appraisers to discuss your business valuation needs, confidentially. We use your information only to propose the appropriate valuation services, and no other purpose.

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