Exploring Donor-Advised Funds for Privately Held Business Owners’ Philanthropy

For business owners of privately held companies seeking a seamless and impactful way to contribute to charitable causes, Donor-Advised Funds (DAFs) have emerged as a philanthropic and tax-efficient solution. These vehicles offer a flexible and tax-efficient way to manage charitable donations, allowing donors to make contributions to a fund and then recommend grants to their favorite charities over time. Many people have successfully used DAFs to support the causes they care about, and there are numerous success stories available online.

According to the 2023 DAF report, contributions to DAFs reached an all-time high of $85.53 billion in 2022. These contributions have grown at a double-digit compound annual growth rate (CAGR) over the last five years, as detailed below.

Source: National Philanthropic Trust. 2023 Donor-Advised Fund Report

Even though DAFs are an effective tax-efficient vehicle to make contributions, special attention, and professional advice are required to obtain such tax benefits and contribute to a good cause. (NOTE: Exit Strategies does not provide tax advice but will work with your tax advisors to help value the assets contributed to a DAF.)

Contributions of Private Securities

Most of the valuations we perform for the transfer of equity to DAFs are associated with the transfer of private equity securities. These transfers into DAFs frequently occur immediately before a pre-arranged stock sale.

In these situations, the donor hopes to claim a charitable deduction for the full fair market value of the gifted stock. However, because the sale of private securities always has risk, a qualified appraiser must pay special attention to discounts associated with a lack of liquidity (or a lack of control and marketability) that lowers the value of the donation to the Fair Market Value at the date of the gift rather than the anticipated timing of the income to the DAF. The appraiser must analyze related documentation of the donation, such as the private company’s by-laws, an operating agreement, or a buy-sell agreement, to see if there are any transfer restrictions in support of these discounts.

Form 8283

The IRS requires Form 8283[1] to be filed with a tax return in support of the resulting tax deduction for the donor. This form needs to be signed by the donor and the recipient, as well as the certified appraiser, along with a thorough, USPAP-compliant report required by the IRS for their review.

IRS-Compliant Report

The IRS considers several factors while reviewing a business valuation report, including the completeness of the report, whether it adequately discloses the methodologies applied, and the information necessary for a reader to understand the report. The IRS assesses whether the appraiser possesses the necessary skills and credentials to conduct the business valuation.

If you are planning to contribute private equity or other illiquid assets to a DAF, professional advice and planning is critical. A team of advisors, including a tax attorney and your accountant, will help you navigate this process. ESGI would welcome the opportunity to be part of that team as the valuation expert who opines on the value of these donations. Our team of appraisers includes professionals with the ASA designation (an Accredited Senior Appraiser) issued by the American Society of Appraisers[2], and our opinions meet strict IRS requirements and have been successfully defended in IRS review.

Exit Strategies has certified appraisers who value control and minority ownership interests of private businesses for tax, financial reporting, and strategic purposes. If you’d like help in this regard or have any related questions, you can reach  Joe Orlando, ASA, at 503-925-5510 or jorlando@exitstrategiesgroup.com.

[1] https://www.irs.gov/pub/irs-pdf/f8283.pdf

[2] https://www.appraisers.org/credentials/business-valuation

How to avoid being surprised by your business valuation

A significant number of business owners do not know how much their business is worth. That can be a source of conflict in the face of unfortunate events such as a divorce or a partnership separation. But it can be even more painful when the business owner plans to retire, only to find out the business isn’t worth as much as they expected.


These owners may have harbored lofty expectations based on personal attachment, historical performance, or their own inexperienced assessments, only to face a stark reality when confronted with a lower-than-expected valuation. It’s difficult news that can lead to dashed retirement dreams.


Maybe the owner has to work years longer than expected to build the business to the valuation they want and need. Worse yet, some business owners cling to their misplaced expectations, resisting calls from spouses or business partners to sell. Over time, distractions, frustrations, or external factors beyond their control can lead to declining business performance, and the business no longer becomes salable at all.


Let’s explore some of the reasons why business owners may experience such unwelcome surprises and shed light on the factors that can impact a business’s worth:


1. Emotional attachment: Business owners often have a personal and emotional attachment to their business, which skews their perception of its worth. Unfortunately the time, effort, and resources you’ve put into building a company do not always translate into transferrable value.


2. Lack of financial documentation: Another common problem that catches business owners off guard is a lack of proper financial documentation.

This happens frequently in bars, restaurants, and other cash-based operations. Sometimes owners make the mistake of not reporting income in order to save on taxes. But every dollar saved in annual taxes can cost three or four times (or more) as much in lost business value at the time of sale.

Even so, this is a problem even larger, non-cash businesses can deal with. If a business owner has not maintained accurate and up-to-date financial records—tracked according to standard accounting practices—it can be challenging to show the company’s true financial performance.


3. Overreliance on historical performance: Business owners might assume that historical financial performance automatically translates to current value. And it’s true that buyers will tune into the last 12 months’ financials. However, buyers are also looking at future earning potential.

They take various factors into account, including your company’s gross profit and EBITDA margins. Are your margins shrinking or growing? What about the market and the competitive landscape? If the business’s historical performance is not indicative of its current or future potential, the valuation might be lower than expected.


4. Concentration of risk: A business heavily reliant on a few key customers, suppliers, or employees poses a risk to potential buyers. If the value of the business is significantly tied to specific individuals or relationships that may not transfer upon a sale, that will impact the valuation.


5. Industry and market factors: External factors, such as changes in the industry or market conditions, can influence the value of a business. If the industry is experiencing a decline, changing trends, or disruptive technological advancements, the value of the business may be lower than anticipated.


6. Unrealistic growth projections: Business owners sometimes have overly optimistic growth projections that are not supported by market data or a realistic assessment of the business’s potential. If growth projections are unrealistic or lack substantiation, it can negatively impact the valuation.

It’s not good enough, for example, to say, “We don’t do any marketing. All you have to do is market the business and sales will grow.” Such a claim linked to a “hockey stick projection” (i.e., flat growth followed by a sharp increase) can hurt your credibility with buyers.


7. Lack of professional guidance: Without proper guidance from business advisors, such as an M&A advisor or valuation expert, owners may not fully understand the factors that impact what their business is worth. Seeking professional advice can help an owner manage expectations or, better yet, adjust business strategy toward supporting their valuation goals.


Each business is unique, and the factors affecting a valuation can vary. It’s generally a good idea to keep tabs on what your business is worth over the years. Consider getting an affordable estimate of value every two to three years so you know where your business stands. You don’t want to be caught off guard by any negative surprises at retirement time.

For advice on exit planning or selling a business, contact Al Statz, CEO of Exit Strategies Group, Inc., at alstatz@exitstrategiesgroup.comExit Strategies Group is a partner in the Cornerstone International Alliance.

Are You an Expert at What You Do?

So what is an expert and, more importantly, are you one? The term “expert” has many definitions. For anyone who has written a wedding toast or sat through a valedictorian’s speech you know how the next sentence starts…Webster defines an Expert as “one with a special skill or knowledge representing mastery of a particular subject.” If you click through the link you will notice an obsolete definition for the adjective: experienced.

This distinction is important to understand who can hold themselves out as experts in a particular field. In my field, Business Valuation, I consider myself both experienced and an expert. My certification as an Accredited Senior Appraiser through the American Society of Appraisers allows me to separate myself from other experts. For example, in valuing a business, a business broker may hold themselves up as an expert by applying pricing tools to determine the appropriate value of a business in a hypothetical transaction.

However, without the proper training and credentials, a business broker may rely on summary information for market multiples (i.e. the Business Reference Guide) and ignore the details of a transaction search. Without proper valuation training, they may also decide to exclude an income approach as a methodology better suited for a business generating strong cash flows. While the ASA, AICPA, and IRS standards dictate that my work as a credentialed appraiser meets the requirements of their compliance in opining to a value, anyone holding themselves up as an expert needs to follow a Federal Rule of Evidence Rule 702: Testimony by Expert Witnesses which states that;

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise if:

  • the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
  • the testimony is based on sufficient facts or data;
  • the testimony is the product of reliable principles and methods; and
  • the expert has reliably applied the principles and methods to the facts of the case.

An Update and a Crackdown

However, an amendment to Federal Rule of Evidence 702 will take effect on December 1, 2023, to help clarify the qualifications of an expert witness. A crackdown using the terms of this amendment has already taken place with increased exclusions and reversals of a lower court’s decision to admit expert evidence. Here are the terms of the amended Rule 702 (changes either crossed out or in bold).

Amended Rule 702: Testimony by Expert Witnesses

A witness who is qualified as an expert by knowledge, skill, experience, training, or education may testify in the form of an opinion or otherwise, if the proponent demonstrates to the court that it is more likely than not that:

  • the expert’s scientific, technical, or other specialized knowledge will help the trier of fact to understand the evidence or to determine a fact in issue;
  • the testimony is based on sufficient facts or data;
  • the testimony is the product of reliable principles and methods; and
  • the expert has reliably applied expert’s opinion reflects a reliable application of the principles and methods to the facts of the case.

While the above changes may seem minor, they are having an immediate impact on expert selection by attorneys and the exclusion of experts by judges. One of the top 50 law firms in the US, Perkins Coie, suggests that:

“While the rule has not changed extensively, the amendments clarify the standards federal courts should apply to the qualification of expert witnesses…In addition, counsel preparing expert witnesses may wish to ensure that the expert is prepared to defend the principles and methods used as appropriate and reliably applied to the given case.”

A Daubert Standard

Cornell Law School’s database of legal terms defines the Daubert Standard as follows:

“The ‘Daubert Standard’ provides a systematic framework for a trial court judge to assess the reliability and relevance of expert witness testimony before it is presented to a jury. Established in the 1993 U.S. Supreme Court case Daubert v. Merrell Dow Pharmaceuticals Inc., 509 U.S. 579 (1993), this standard transformed the landscape of expert testimony by placing the responsibility on trial judges to act as “gatekeepers” of scientific evidence.”

This standard was recently triggered in a bankruptcy case in South Carolina. The judge determined that the expert was qualified in this case but these challenges continue to occur.


I appreciate and respect someone with knowledge and experience holding themselves up as an expert. However, without the required credentials to pass the Daubert Standard test, I believe a judge, as the “gatekeeper” for the court, is more likely than not to exclude experts without an attorney appeal going forward.

Exit Strategies ten certified appraisers value control and minority ownership interests of private businesses for tax, financial reporting, and strategic purposes…and provide expert testimony. If you’d like help in this regard or have any related questions, you can reach  Joe Orlando, ASA at 503-925-5510 or jorlando@exitstrategiesgroup.com.

Buy-Sell Agreement Valuation Resources

Every business with two or more shareholders should have a buy-sell agreement. A buy-sell agreement is a legally binding contract that restricts and governs how shares are priced and transferred between shareholders or partners of closely-held businesses when certain trigger events occur. Arguably, valuation is the most important (and argued over) aspect of buy-sell transactions.

A good one-third of our business valuation work relates to internal equity transactions, and because this is an area of our practice that we are extremely involved in and passionate about, we’ve authored many articles about buy-sell agreements over the years. This post is a compendium of those articles, for easy reference:

Exit Strategies Group’s Buy-Sell Agreement Valuation Articles

  1. Choices of Pricing Methodologies in Buy-Sell Agreements
  2. Pros and Cons of Price Formulas in Buy-Sell Agreements
  3. Hidden Problems with the Price Formula in Your Buy-Sell Agreement, and Solutions
  4. How a Covenant not to Compete Affects Value in Buy-Sell Agreements
  5. Does My Buy-Sell Agreement Establish Value for Estate Purposes?
  6. Funding Your Buy-Sell Transactions
  7. Four Questions Your Buy-Sell Agreement Should Answer
  8. The Dismal D’s of Buy-Sell Agreements (shareholder departure, disinterest, divorce, death, disability, etc.)
  9. Buy-Sell Agreement Categories (as defined by the relationship between the parties to the agreement, i.e., the individual owners and their business entity.)
  10. Your Buy-Sell Agreement: In good shape? Needs a tune up? Or disaster waiting to happen?
  11. Your Buy-Sell Agreement – Keep It Current Before It Costs You Money and Grief!
  12. One Business Appraiser that All Parties Know and Trust

Finally, a summary of Exit Strategies Group’s services relating to buy-sell agreements.

MCLE Workshop for Attorneys

Our team also developed a free workshop for attorneys titled, “Avoiding Landmines in Buy-Sell Agreements: A Valuation Expert’s Perspective.” This program qualifies for 1.0 hour of MCLE credit and has been attended by over 250 attorneys so far. Contact Joe Orlando for further information.

Exit Strategies Group provides business valuation and consulting services to business owners and attorneys, to help them create, fix and administer buy-sell agreements (BSA’s). Feel free to check out these articles, and don’t hesitate to reach out to one of our senior appraisers with a related question or potential need.

Al Statz is the founder and President of Exit Strategies Group, Inc. For further information on this subject or to discuss an M&A, exit planning or business valuation question or need, Email Al or call him at 707-781-8580. 

A Student of Business

A Difference of Opinions: Closely-Held vs. Venture-Backed Companies- Part 2 of 2

In Part 1 of 2 of this blog, I spoke about my transition from valuing venture-backed technology startups to valuing owner-operated small to middle-market businesses with $2 million to $50 million in revenue. As part of that discussion, I set the stage for three differences in how these types of businesses are valued, specifically differences in Diligence, Tools, and Approaches. Part 1 looked at Diligence and Tools, and Part 2 will complete this discussion with a focus on differences in business valuation Approaches and Discounts.


Valuation Approaches:

A valuation Approach is a general way of determining value using one or more business valuation methods. Below is a summary of each of the three fundamental approaches to determining value: Asset Approach, Market Approach, and Income Approach.

  • The Asset Approach is based on the fair market value of a company’s underlying assets and liabilities. Generally speaking, the cost of duplicating or replacing each component is determined individually. Common asset-based methods are the a) Adjusted Book Value Method; b) Liquidation Value Method; and c) Replacement Cost Method.
  • The Market Approach is based on the principle of substitution, meaning that for any investment an investor considers, there exist other investments with similar characteristics that are acceptable substitutes. “Prudent individuals will not pay more for something than they would pay for an equally desirable substitute.” The principle of substitution is applied by studying the values of comparable (or guideline) businesses to estimate a value for the company being appraised.
  • The Income Approach considers the earnings capacity of a company. It values a business enterprise based on the present worth of its expected future benefit stream, adjusted for risk. The income approach operates on the theory that an investor will invest in businesses with similar investment characteristics, though not necessarily of the same business type.



The values produced by the valuation methods used above may be subject to one or more adjustments referred to as discounts and premiums. The most common adjustments are control premiums, minority interest discounts (referred to as discounts for lack of control or “DLOC”), and discounts for lack of marketability (“DLOM”). Control refers to the extent to which an ownership interest controls the business entity. Marketability refers to liquidity, the extent to which an ownership interest can be sold quickly and turned into cash.

A controlling shareholder enjoys many benefits that are not enjoyed by minority interest owners. Minority interests are therefore usually worth less, often considerably less, than a proportionate share of the value of the total entity.[i] The types and magnitudes of the discounts/premiums applicable to an indicated value vary with the nature of the method, the data sources used to develop pricing multiples or rates of return, and the income normalization adjustments made. As noted above, our analysis using public company information assumes that any enterprise value is on a minority value because its capitalization is based on the value of a single share of minority equity.


Differences in Valuation Approaches and Methods and Discounts

An appraiser needs to consider all of these methods and potential discounts and decide which to use and which not to use. As outlined above, an appraiser’s approach and tools differ based on the scope of work and the type of company being valued.

This two-part blog offers a detailed review of how a business appraiser’s development of an opinion of value differs based on the ownership and size of the company being valued. I hope that this detail is both understandable and helpful.


Exit Strategies values control and minority ownership interests of private businesses for tax, financial reporting, and strategic purposes. If you’d like help in this regard or have any related questions, you can reach  Joe Orlando, ASA at 503-925-5510 or jorlando@exitstrategiesgroup.com.

[i] Jay E. Fishman, Shannon P. Pratt, J. Clifford Griffith, and James R. Hitchner. PPC’s Guide to Business Valuations, Twentieth Edition, (Fort Worth, TX: Thomson Reuters, 2010), Volume 2, p. 803.5.

A Difference of Opinions: Closely-Held vs. Venture-Backed Companies- Part 1 of 2

In my transition from leading a valuation practice at an accounting firm to an M&A advisory firm, quickly realized significant differences between valuing venture-backed technology startups to valuing owner-operated small to middle-market businesses with between $2 million to $50 million in revenue. Over the last four years, I’ve concluded that there is a distinct and noticeable difference of opinions on the diligence, tools, and approaches used in valuing smaller, privately held companies. But before I dig into those differences, let’s define the fundamental difference between these two types of businesses:

  • Venture-Backed Companies – These companies are usually startups based on an incredible idea that hopes to disrupt existing industries and markets. Some of the Companies I valued in their infancy include Tesla, Okta, Fanatics, and Uninterrupted. Some of these valuations were done before a Subject Company generated its first dollar of revenue and all were flying below the radar at the time of valuation.


  • Privately-Held Companies – These companies include the companies that surround you every day from the local community market to the construction firm building homes in new developments to your local, downtown taproom. For me, they also include a growing number of owner-operated and family-owned craft beverage companies like wineries, craft breweries, distilleries, and cideries.

Now, let’s dig into the difference in how these different types of businesses are valued and how the type of diligence, tools, and valuation approaches used to value these various types of businesses differ significantly.

Exit Strategies Group prides itself on the platform and tools that it offers its appraisers and advisors for valuing companies for compliance, strategic, and M&A assessment purposes. In addition to our robust valuation model, we have a “Playbook” that is both a training and reference document that encompasses how we go about valuing and selling businesses. For this blog posting, I will only focus on the first two of these differences, diligence, and tools. Below is a “heat” matrix of how the differences I see in both:


All advisors have to follow strict guidelines regarding due diligence to meet compliance standards with the AICPA, USPAP, and other valuation standards. While the heat chart below shows differences between the diligence in valuing these two types of Subject Companies, they map to access to data and how a family business is managed differently than a venture-backed corporate startup.

Here are the biggest differences:

  • Access – When valuing venture-backed companies, the appraiser is usually dealing with senior financial management during diligence. Rarely does a founder take on this role for a business. For owner-operated businesses, the conversations before engagement and through to a final report almost always include the founder or owner as the “key person” in charge of the business.


  • Financial History – Venture-backed companies, by definition, lack any financial or operational history so it is almost impossible to analyze any trends over time. Owner-operated businesses usually have long histories that allow for this analysis.


  • Financial Forecast – What a startup lacks in historical financial history they make up for with long-term forecasts that look at the growth of their target market, their share of that market, and ultimate profitability over time. Owner-operators rarely provide long-term forecasts and bemoan the lack of visibility in trying to plan more than a budget year ahead.


  • Normalization – From the beginning, venture-backed companies are meant to be run in a corporate manner where senior managers (and founders) focus on their fiduciary responsibilities to shareholders. However, at times, there is an abuse of the policy of funds spent on “non-operating” or personal expenses. However, owner-operated companies are beholden to no one or have control of the business that allows them to run a business without a requirement for “market pricing” of everything from salaries and expenses. Therefore, it is almost always necessary to review the detail of an owner-operator’s financial statements to adjust for non-operating expenses, assets and liabilities, and above- or below-market salaries for themselves, and family members. The key question to ask in normalization is ”will a willing buyer need this expense or asset to run the business?”


Similar to a carpenter who builds custom furniture compared to a construction worker building houses, valuation experts valuing these two types of businesses use different tools. The matrix below looks at some of these tools in greater detail.

Here are the biggest differences:

  • Deal Databases – When valuing venture-backed companies, the appraiser ignores the comparison of the Subject Company with transactions completed in the industry in which it competes. The main reason is that a startup usually lacks specific comparables due to its business model and stage of development; they are at the beginning of its corporate life cycle while these transactions are “tombstones” for companies at the end of theirs. Owner-operated companies mirror the stage of development of these transactions. Therefore, this data is always used when valuing an owner-operated company.


  • Publicly Traded Security Information – I have found that the approach to valuing venture-backed companies always relies on publicly traded market values and a guideline public company approach in valuing the business either at the Valuation Date or in the determination of a terminal value associated with a discounted cash flow (DCF). The simple assumption here is that if a venture-backed company is successful in its business plan and generating income, it will likely be publicly traded or compared to publicly traded companies at the end of a long-term (5-year) cash flow. Small, owner-operated businesses almost always lack that likely outcome. Therefore, while I always used this approach to value venture-backed businesses, I never use it to value


  • Market Salary Adjustments – Unlike a venture-backed corporation that defaults to market salaries in its hiring process (even for its founders), owner-operated businesses see a wide range of the treatment of salaries in these businesses. I would say that I’ve seen an equal number of owners pay themselves above-market salaries as ones who pay themselves at below-market rates. Some don’t pay themselves at all. In this case, and as detailed above, we need to adjust for this policy to properly burden the Subject Company with market salaries to normalize the income statement for a willing buyer for them to properly value it. This assumption is at the heart of how we define fair market value.


In the coming weeks, we will look at the third of these differences, approach. It’s an important and detailed discussion that needs a separate blog post.

Exit Strategies values control and minority ownership interests of private businesses for tax, financial reporting, and strategic purposes. If you’d like help in this regard or have any related questions, you can reach  Joe Orlando, ASA at 503-925-5510 or jorlando@exitstrategiesgroup.com.

Highlight Your Company’s Intangible Assets When Selling

Intangible assets represent most of the value in almost all of the companies we sell, so it only makes sense that showcasing the intangible assets that make your company unique and successful can significantly impact your final transaction value. Here are some practical tips to help you leverage your intangible assets in a sale process.

Intangible assets are non-physical assets such as contracts, customer lists, proprietary software, databases, designs, recipes, proprietary business processes, well protected trade secrets, works of authorship, key employees, strategic relationships, audit reports, credentials, licenses, and brand recognition. Intellectual property (“IP”), such as patents, trademarks, and copyrights, are all intangible assets. These assets generally produce value for a company, but don’t appear on its balance sheet.

Three steps to inventory your intangible assets:

  1. Conduct an internal audit of your business operations to identify all intangible assets owned by or used in the business and gather appropriate supporting documentation for each asset.
  2. Prepare a detailed description of each item including the nature, scope and history of the asset, how it is used, its original cost, past and future economic benefits, ownership, licenses and any legal restrictions, useful life, potential threats, etc. Include references to supporting documentation.
  3. Group assets into appropriate asset classes (by type and business function) and save the supporting documents in a well-organized virtual data room.

Engaging the services of legal, financial, and valuation experts can help bring to light intangible assets that may not be immediately obvious. An attorney can verify ownership rights and ensure that your assets are properly protected and legally transferable.

When taking a business to market, M&A advisors prepare a marketing document known as a Confidential Information Memorandum or CIM. The CIM will highlight your company’s intangible assets and suggest how buyers can utilize them to create new revenue streams, increase profits, or mitigate potential risks. Of course, buyers will do their own due diligence on your assets, and lots more, before closing the deal, so all assertions in the CIM must be reasonable. Overhyping a company can be a quick turnoff for buyers.

The M&A advisor or investment banker also uses your intangible asset documentation to help them identify potential acquirers that stand the most to gain from obtaining access to those assets.

Intangible assets can exist and not have value to their current owner. When a target business is profitable and growing, it usually isn’t necessary to place values on individual intangible assets for sale purposes. If a business is a pre-revenue startup or marginally profitable, or if certain intangible assets aren’t being used productively in the business, it may be helpful to have an expert determine the economic value of individual assets.

Even owners with long expected hold periods can benefit from identifying and monitoring their company’s intangible assets by using this information in strategic planning and investment decision making. The asset inventory and supporting documents should be reviewed and updated periodically by the executive team as part of its planning process.

In conclusion, having a full inventory of a company’s intangible assets is an advantage when marketing and negotiating the sale of a business. Take the time to identify and document your intangible assets to ensure that you receive the best possible reward for your life’s work.

Continue the Conversation

Al Statz is president and founder of Exit Strategies Group, Inc. For further information on leveraging your intangible assets in a business sale or to discuss a potential M&A need, confidentially, contact Al at 707-781-8580 or alstatz@exitstrategiesgroup.com.

Business Valuation 101 for Testing Laboratories

Testing laboratories operating in the agriculture, food production, environmental, manufacturing and construction industries provide essential and recurring services to their customers. As such they can be attractive to investors looking for steady growth, recession-resistant acquisition opportunities. If you own a testing laboratory and are thinking about an exit, you’ll likely want to know its value. Business valuation can help lab owners to plan for their future and to understand how to improve their company’s financial health.

Valuation is the process of analyzing value drivers such as market conditions, business model, customer base, competitive landscape, and financial performance. In this article, we discuss the basics of business valuation and explore some key drivers for testing laboratories that can help you to understand the value of your laboratory business.

Different Valuation Approaches

There are three fundamental approaches to determine value: Asset, Income and Market. Most valuations triangulate the analysis results using each approach.

  1. Asset – based on the fair market value (adjusted from book value) of a company’s underlying assets and liabilities and the identification of intangible assets.

  2. Income – based on present value of the expected future benefit stream (cash flow) adjusted for risk.

  3. Market – based on a principle of substitution where value is based on a multiple of an operating metric (earnings) derived from the publicly available value of companies with similar characteristics.

The fundamentals that drive value in testing laboratories are the same as for any small business, strong cash flow, consistent growth and known and controllable risks. Cash flow is measured by EBITDA, which is net operational income less interest expense, state and federal taxes, depreciation and amortization. EBITDA can be used to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions. The more consistently profitable a business is, the more valuable it will be. A well-executed valuation does not just consider historical performance but will analyze future growth prospects and risks for the business.

Value Drivers for Testing Laboratories

Within the testing industry, we’ve identified some drivers that commonly result in strong business performance and enhance value:

  • Provide in-demand services: Demand for testing is typically driven by third party government agencies, vendors or customers requiring verifiable evidence of reliability, safety or regulatory compliance. It is important to keep testing procedures relevant to changing demands and compliant with regulations. Laboratories that understand the sources of industry demand and position their services accordingly will be more valuable.
  • Recommendation/accreditation from authoritative source: Quality and consistency of service is vital to testing laboratories. Obtaining laboratory and quality systems accreditation like ISO will help to improve service delivery and demonstrate to the marketplace that the laboratory can provide a high level of service.
  • Contracts: Maintaining long-term vendor and customer relationships creates a more stable business and a pedestal to plan for the future. One approach to encourage these relationships is to establish vendor contracts that provide consistent pricing and terms and customer contracts that provide recurring revenue. Businesses with these contracts in place are more valuable.
  • Access to highly skilled workforce: Companies need to employ highly qualified and highly skilled scientists and support staff who are knowledgeable not just in test protocols, but how test results are utilized by the industries that they are servicing. Businesses with a committed and capable management team are better positioned to perform after a business owner exits.
  • Prompt, consistent delivery to market: The ability to deliver results in a timely manner is important due to the results-oriented nature of this industry. To remain competitive, laboratories need to be located close to clients for quick delivery of test results and utilize processes, equipment and technology that produces efficient and accurate test results.

Exit Strategies Group helps business owners to value and exit their testing laboratories. If you’d like to have a confidential, no commitment discussion on your exit plans or have related questions, please contact Adam Wiskind, Senior M&A Advisor at (707) 781-8744 or awiskind@exitstrategiesgroup.com.

Spring Break 2022

We all remember the question; what did you do on your spring break? Whether it was the title of a paper you needed to write for 11th grade English class or the topic of discussion at the pub in late April of your senior year of college, it’s a great question whose answer can be as boring as it is exciting. So what did I do on my spring break this year? I’ll tell you…

Delayed Service

In the summer of 2019, my son, entering his sophomore year of high school, asked if I would be interested in chaperoning a service trip to Panama for Courts for Kids. With the mission of “transforming lives through building courts and cultural exchange”, Courts for Kids is a not-for-profit that pairs service-oriented high school students, families, and adults with needy communities all over the world. These communities need to go through a rigorous application process to secure a court. Like Los Pilares, these rural villages commit their entire population to the process and construction from housing visitors, securing materials and equipment, and helping with the construction. Most of the costs are covered by fees charged to the volunteers that they can raise through donations and fundraisers. The total cost (including flights and all other expenses) per participant for my trip was $2,375 for each of us, half of which we raised through donations from family and friends, and a 50’s themed dinner and silent auction that 6 students organized at our favorite diner in downtown Camas, WA. By January of 2020, we were ready to go. I worked with a local business to get t-shirts made for the trip that the students could mark up and sell for another fundraiser. Fortunately, we didn’t put the date of the trip on the t-shirt. With a departure date in late March, we found ourselves gripped by the news about some pesky virus raging across the globe. Once the WHO labeled it a pandemic, we were on hold. Maybe we could go? Maybe it would be delayed a week or so? We all know how wrong that optimistic approach was.


After a lockdown, a few open windows to travel (that shut as quickly as they opened), and subsequent COVID variants that eliminated any opportunity to make the trip in the spring of 2020 or 2021, plans were cemented (pun intended) and we boarded a plane in Portland, OR on our way to Panama City through Houston on April 1st. For those of you who got my out-of-office response, I was off the grid for 10 days. The opportunity to travel with your child for 10 days without electronics was a gift in itself. Paper made a reappearance in his life; playing cards at the airport, reading books on the plane, and writing in his journal. As a chaperone, I was able to have my phone but as the map shows you, we were about 4 hours west of Panama City and out of range of most cell coverage. After a full day of travel, a night in a youth hostel, and a long bus ride sitting next to chatty teenage girls the next day, we were greeted with the warmest welcome from the Los Pilares community (see the picture above and the t-shirts we made for the trip).

My son, now a junior in high school, was now at an age where kids shy away from parental participation in anything. And as a connoisseur of dad jokes, I got more than a few eye rolls from the group of 20 high school students. Still, as you can tell from the photos, we had a great and meaningful trip.

The pictures below tell the story. We bunked in a classroom at the schoolhouse in the town center. The nets were definitely required. The food was rich in starches (rice, yuca, plantains, corn) and paired with locally grown coffee and bottled water. Meat and fish are luxuries for the community but they were generously included in our menu. The community bought a pig and used every bit of it to feed our group of volunteers and members of the construction and planning team. We ate local fruit (papaya, banana, and nance fruit) and feasted on classic Panamanian dishes such as Arroz Con Pollo (or rice with chicken being made in one of the pictures below). We learned how to make tamales and Bollo De Maiz (a boiled cornmeal dumpling) after learning how to grind corn into masa. On our first night there, we were graced with a traditional dance performed by two local children in native dress.


Oh, and we built a sports court with the help of incredible individual effort matched with superior teamwork.

BEFORE                                                                                                                 AFTER


So What Did I Learn?

I like to consider myself a “student of business” and look to learn about economic situations and business models wherever I go. I’m that guy in the Progressive Commercial (the one in the visor at 0.12 of the video). So here are my takeaways from an incredible trip.

  1. It rains in Panama in April. A lot.
  2. “Farm to table” isn’t a tagline on a restaurant menu but the default way of life here.
  3. Most families in Los Pilares live on about $10 a week.
  4. Panama uses the US Dollar as currencies but prices are so reasonable that you use coins much more than you do in the US.
  5. A rural community has its own self-contained ecosystem where everyone knows and embraces their role.
  6. That ecosystem is built on generations of families that seek a simple life and are reluctant to travel or live in the bustle of a big city
  7. Life’s riches lie in the love of family, community, tradition, and faith, not money.
  8. I will remember the people I met in Panama as some of the richest, nicest, and most authentic people I’ve ever met.


Exit Strategies values control and minority ownership interests of private businesses for tax, financial reporting, and strategic purposes. If you’d like help in this regard or have any related questions, you can reach  Joe Orlando, ASA at 503-925-5510 or jorlando@exitstrategiesgroup.com.