Exit Strategies Insights

Industry insights, knowledge base and announcements for business owners and professional advisors

Business Valuation Insights

Ten Factors that Affect the Cost of a Business Valuation

In the world of pricing, there are simple models (e.g. cost plus a profit markup) and complex models (e.g. dynamic pricing based on real time supply and demand algorithms ). If you have ever purchased an airline ticket online, you’ve seen how a complex model makes prices impossible to decipher. Fortunately, we can offer greater transparency and consistency on business valuation pricing! Like most professional service pricing models, business valuation pricing is largely a function …

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Understanding the Value of Intangible Assets

As a follow-up to our recent post on profiting from intangible assets in a business sale, this post introduces intangible asset valuation. As our last post outlined, “intangible assets are identifiable, non-physical in nature. They are something you can describe, document … and, most importantly, transfer.” Once identified, there are several ways to value intangible assets. I’ll discuss a common approach called the “with and without” method, using a simple and recognizable case study. Let’s …

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How a Discount for Lack of Marketability (DLOM) is Determined

In a prior chapter of my professional career, I focused on equity security valuations for tax and financial reporting purposes. I led a team of valuation experts who determined the strike price of options granted to employees of up and coming technology companies on their way to IPO. For most, that strike price represents the basis (or cost) of an employee’s future wealth (and tax bill). In simple terms, the valuation of these shares in …

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“Closing of the Books” to Allocate Income on S-Corp Ownership Change

As brokers and appraisers of closely-held and family-owned businesses, we work with a lot of S-Corporations. When S-Corp shares transfer subject to a buy-sell agreement, the valuation date, trigger date and transaction date rarely fall conveniently at the end of a year.  That’s no problem for valuation experts. We can determine value as of any date. But what’s the fairest way to allocate taxable income among S-Corporation shareholders in a year in which ownership changes? …

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Joe Orlando Joins Exit Strategies; Portland Office Open

Exit Strategies Group, Inc. (ESGI) is pleased to announce that Joe Orlando, ASA, has joined us as Vice President of Valuation Services. Joe will perform the full range of business valuation services for our clients and provide technical leadership to our team of accredited valuation experts. Over the past 15 years Joe has valued hundreds of early to late stage companies in various industries. Some of his focus areas have been technology (software, ecommerce and …

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Financial exit planning, Is your business ready?

I recently had a client looking to sell their medical supply business and retire. I worked with management to pull together all the documentation and financials needed, and conducted conduct a probable selling price analysis. With report in hand I met with our clients to review the results and plan a go-to-market strategy. Unfortunately, the probable selling price fell slightly short of what the client needed to retire (after taxes). We identified excessive inventory as one …

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Ken McCauley Joins Exit Strategies as Senior Valuation Analyst

Exit Strategies Group is pleased to announce that Ken McCauley, CPA, ABV, has joined us a Senior Business Appraiser in our North San Francisco Bay Area California office. Ken will provide a broad range of business valuation services for our clients. He has been appraising businesses since 2010, including wineries, medical and professional services, software, retail, restaurants, manufacturing, construction, and businesses in other sectors. Prior to joining Exit Strategies, Ken was a partner in AL Nella …

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Understanding Seller’s Discretionary Earnings

If you have acquired or sold a small company, or had one appraised, you’ve probably heard the term “Seller’s Discretionary Earnings”. Or you may be thinking “Earnings are discretionary? My earnings aren’t discretionary at all!” Let’s examine this often-misunderstood term, and how it compares to EBITDA, another common earnings measure. What is Seller’s Discretionary Earnings? Seller’s Discretionary Earnings (“SDE”) is a calculation of the total financial benefit that a single full time owner-operator would derive …

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Manage Working Capital to Increase Business Value

As you likely know, working capital equals current assets minus current liabilities. Companies that have a high level of cash tied up in current assets (primarily cash, accounts receivable, and inventory) without similar levels of current liabilities are not as attractive as those who tightly manage their working capital. Buyers are often leery of businesses that require high working capital to sales ratios because as sales grow the company must continually invest more cash in …

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One Business Appraiser that All Parties Know and Trust

Jointly retaining a single trusted business valuation expert in disputes over value is becoming increasingly common as owners seek ways to streamline the valuation process, protect their companies and control costs. Naming one appraiser in buy-sell agreements is also becoming more popular. In this slightly long-winded rant, I will discuss the pros and cons of using one appraiser that all parties know and trust, and explain why you should give serious consideration to this option. Where …

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