Determine the true value of your business.
Knowing the true value of your business is critical in many situations, including securing financing, working with a potential investor, thinking about an exit strategy, or arranging your estate. Regardless of the situation, you need a realistic understanding of your company’s worth in order to achieve your goals and avoid leaving money on the table.
Every business is different, with multiple factors that contribute to its ultimate value in each scenario. To establish an accurate and complete picture, you need the insight of experts qualified by the National Association of Certified Valuators and Analysts who know your business inside and out, as well as the complex interplay of economics and industry trends in your sector.
When Does a Company Need a Business Valuation?
Business valuation services are critical at many different junctures. You may need to estimate the value of your business when you’re bringing on investors, issuing stock bonuses, or giving away stock as a charitable contribution. An accurate valuation can help to ensure that you’re putting the right price tag on your stocks whether you’re selling them to investors, giving them to employees, or claiming a tax deduction for a charitable contribution.
In other cases, you may need to understand the value of your business because of how it relates to your personal finances. In particular, you need to know the value of your business when you create your estate plan. Its value can also be critical if you’re strategically using gifts to reduce the size of your estate.
Or perhaps you want to ensure that you have an adequate amount of life insurance — while many employees take out policies that are for 10 times their annual income or based on anticipated post-mortem expenses, business owners need to think about their life insurance needs in slightly different terms.
To meet the needs of their family, they may need a policy that covers their investment in the business as well as their estimated future earnings and the equity they’ve built up in the company.
Alternatively, you may want to invest in life insurance for all of the business’s partners. In this situation, you may want a life insurance policy that allows the partners to buy out your portion of the business, and to make this accurate, you need a policy that accurately reflects the current value of the business.
Business valuation services are also critical for litigation purposes. This could be a personal litigation issue such as a divorce or it could be a business-related issue such as embezzlement, SEC investigations, or shareholder disputes.
Finally, business valuation services are critical when you’re planning your exit strategy. Whether you want to sell the business, let it merge with another company, or pass it to your heirs, you need to understand what it’s worth first. You put your life into your business, and you need to ensure that you walk away with a fair payout.
DHJJ Business Valuation Approaches
At DHJJ, we use three different valuation approaches and often we combine methods to arrive at the most accurate number possible. Here are the three main approaches:
An income-based valuation employs cash flow to assess a business’s worth. The capitalization of earnings estimates future earnings from recent years to calculate value based on income return. The discounted cash flow suits volatile cash flows, focusing on projected future incomes instead of past performance.
The market-based approach values your business based on similar businesses in the marketplace. This approach makes the most sense when there are adequate comparable businesses to create an estimate. Its accuracy is limited in situations where there aren’t really any comparable businesses.
In asset-based valuation, the business’s net worth is derived from owned assets, both tangible and intangible, minus liabilities. Precise accounting for intangibles like goodwill is vital. Adjustments might be needed for investment and capital assets on the balance sheet to ensure accuracy.
What Information does a DHJJ Appraiser need for a Valuation?
Both the market and income-based valuation methods are tied to the EBITDA which stands for earnings before interest, taxes, depreciation, and amortization. To calculate this number, your appraiser will need to see your profit and loss statements. To ensure everything is correct, they may need to do a third-party audit or a review of your accounting records, and if mistakes are found, they may need to do some forensic accounting.
Additionally, the appraiser will need to look at the assets on your balance sheet, and they may even need to look at the assets in person to ensure their value matches the number on the balance sheet. Beyond that, the appraiser may need to talk with you or observe workflows or business processes to ensure they’re taking everything into account.
Benefits of Hiring a CPA Firm for a Valuation
When you work with a CPA firm for business valuation services, you get someone who can help you determine how much your business is worth. But their services don’t stop there. On top of valuing your business, they can also provide you with a business health assessment.
Then, through their business advisory services, they can help you create a roadmap to improve the value of your business or prepare for other junctures on the road. They can also guide your leadership team or provide you with business management consultants.
Choose DHJJ for Your Business Valuation
DHJJ offers complete business valuation services for small to mid-sized, privately-held businesses focused in the Chicago area and throughout Illinois. Starting with a SWOT analysis, our valuation professionals get to know your business intimately. You’ll find that the questions we ask in the inquiry process add value and contribute to your success even before you receive your detailed and customized valuation report.
We help you shed light on the value of your company stock with a thorough valuation analysis and well-developed report that gives lenders, buyers, tax authorities, and other interested parties the objective information they need. To learn more, contact us by filling out the online contact form or by calling 630 420 1360 to discuss how we can assist your business.
Have questions? Want to learn more about how DHJJ can help you and your business? We’d be happy to discuss your situation.
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630 420 1360
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