Archive for the ‘business appraisals’ Category
Buying a Business? Make Sure to Do Your Homework
It may seem easier to purchase an established business than to start one from the ground up. While this may be true in some cases, there could be problems with an existing business that may not be clear upon first look. However, oftentimes purchasing a business can end up being just as costly and labor intensive as a startup. Sometimes there are inherent flaws in a business, which is why it is up for sale. As when starting a new business, you need to conduct the proper research and due diligence on any company that you may be thinking about purchasing, which includes getting an unbiased business appraisal of that company.
We’ve written multiple posts on why it’s important for a business owner to know the value of his or her business. It’s equally important for a potential buyer to understand the value of a business that he or she is considering for purchase and to know what he or she is getting in the deal.
Of course there are many things to take into account when contemplating buying a business, such as your own strengths and weaknesses, your understanding of business fundamentals, and your understanding of the potential market in which the business operates. Obtaining a professional business valuation can help you better understand the ins and outs of a particular business, like a business’s cash flow, the value of its assets and/or equipment, how the company acquires customers, and the market in which it operates.
If you’re thinking about buying an established business, get an appraisal. You need to know what you’re getting into.
By: Present Value
Got a Startup? Get a Business Valuation
Most people generally only think about having the value of their business appraised at the time of a potential sale or acquisition. As we have talked about in previous blogs, there are numerous situations in which a business owner must think about getting a business valuation, including when selling a business, for estate planning purposes, and when planning exit strategies. However, something that most people don’t realize is that startup businesses can benefit greatly from undergoing the process of a business valuation.
For a startup company, a valuation can be used as a business performance indicator, reflecting the company’s direction. It can help business owners figure out what’s working and what’s not, and where resources should directed or re-directed. A valuation can also give a deeper, more complete understanding about the competitive forces and drivers in the business’s market.
For any company, a business valuation can provide a snapshot of the business within the context of the market and industry in which it operates, in addition to evaluating the health of the market itself. This can help business owners at any level determine if the initial opportunity is still present and/or whether or not an exit from the business and the market is warranted.
It may be a wise decision for startup business owners to incorporate business valuations on a somewhat regular basis to determine if the company is achieving its desired trajectory.
By: Present Value
Professional Business Valuation and Selling Your Business
Last week, there was an interesting article, “How to Sell Your Business,” in The New York Times. As the title suggests, the article covers the numerous things a business owner needs to think about when considering selling his or her business. We will focus on one of the author’s tips, which we have discussed in previous blog posts (you can read them here): make sure you know what your business is worth.
The article highlights the fact that most business owners have no idea how much their businesses are worth. The writer points out that it is necessary for a business owner to know the value of his or her business in order to set realistic expectations for both the seller and potential buyers. Many sellers may be setting themselves up for disappointment if they don’t understand the potential market price of their business. And if an asking price is too high, it could jeopardize the attractiveness of a business to potential buyers.
Here are all the quick tips from the article for anyone who may be thinking about selling a business:
- Put yourself in the buyer’s shoes.
- Don’t go it alone. Assemble a team of professionals, most importantly an attorney and an accountant that you trust.
- Get a professional valuation of your business.
- Make sure your financial house is in order prior to sale.
- Familiarize yourself with the entire selling process, from start to finish.
If you are thinking about selling a business in the near future, contact Present Value LLC for all your appraisal and business valuation needs.
By: Present Value
New Year, New Planning
This year, 2009, has been a tumultuous one. While there is no way of knowing what the future will hold, you can plan for the future. Planning for the future of your business is always a sound move. You need to know the value of your assets and the value of your business.
Over the past year, we have covered a number of issues that can affect your business. Today, more than ever, it is important to know what it’s all worth. As a business owner, it is important to know the true market value of your machinery, equipment, and business, for things such as business planning, succession planning, business insurance, and business valuation.
In the new year, it makes good financial sense to obtain a credible certified equipment appraisal report that will hold up under scrutiny with financial institutions, government agencies, buyers, sellers, shareholders, or partners. Make sure you know what it’s all worth.
By: Present Value
Present Value: More than an Appraisal Firm
Following up on our press release that went out on Tuesday, December 8, 2009, we’d like to focus a little bit more on some of the characteristics that make Present Value a unique full-service appraisal firm.
While lenders and business owners have many choices when it comes to finding an appraisal company, at Present Value, we pride ourselves on being more than just a company that provides appraisals: we act as a trusted resource for lenders and business owners. We can act as consultants to help guide our clients as they make crucial business decisions, whether it be a lender, looking to conduct pre-loan due diligence or auction assets from a loan default, or a business owner, looking to obtain financing or make an acquisition.
In addition to providing appraisal services, Present Value has the expertise and experience to orchestrate other aspects of these deals. The strength of our services comes from the partnerships that we have developed all across the country. We have the capabilities to bring the right people to the table for whatever our clients’ needs may be, such as auctioneer services or brokerage services. We aim to be problem-solvers for each and every one of our clients, helping them make well-informed business decisions.
Present Value prides itself on its turnkey service offerings, and Present Value is happy to act as a resource for its clients as they cope with past mistakes and look toward improving their processes. Our network of professionals will always deliver the highest quality products, backed by a team of experts in their individual market segments.
By: Present Value
Expansion Financing in a Down Economy
While the economy is showing signs of improvement, many small businesses are still finding it difficult to stay afloat. However, there are a number of businesses that have been able to not only survive, but succeed despite this economy. For companies like this, a down economy can be seen as a time for growth.
A period of growth, for some companies, might require expansion financing to obtain capital to grow their business. Such financing could be used to support the business’s growth through endeavors such as hiring additional staff, purchasing equipment, acquiring real estate, or ramping up marketing efforts.
Businesses need to demonstrate the clear value of their growth in order to justify financing. While the sources of financing can vary greatly – from banks to friends and family members – for the most part, lenders will require detailed, complete business and operating plans. As we discussed in our last post, lenders are conducting more vigorous due diligence than in the past. So, in addition to the traditional business information, lenders are requiring third-party appraisals to provide greater protection for themselves and their investments.
An appraiser must be able to take into consideration all aspects of a business, including operating costs, assets, equipment, revenue, etc. in order to establish a complete picture of the value of a business. Business potential, economic growth, and market growth are other factors that need to be taken into account for this type of appraisal.
In addition to providing clarity to a potential lender, an appraisal can also help business owners make crucial decisions in a time of economic uncertainty.
By: Present Value
Family-Run Businesses Need to Think Out of the Box
Despite reports that the economy may be on the rebound, a recent Wall Street Journal article discusses how the economic downturn has caused many family businesses to shut their doors. Although the article says that it is difficult to quantify the number of family-owned businesses that have been forced to close, experts believe that these types of businesses have been particularly hard hit by current economic conditions.
The article reports the Small Business Administration estimates that somewhere around 90% of U.S. businesses are family owned or controlled, ranging from mom-and-pop shops to a third of Fortune 500 firms, and the Bureau of Labor Statistics estimates that approximately 4.3 million businesses with 19 or fewer employees closed during the fourth quarter of 2007 through the fourth quarter of 2008.
The vulnerability of family-run businesses is attributed to many factors, including the tightness of the credit markets and some of the family traditions and factors that have kept them in business for so many years, which have rendered them unable to adapt quickly enough to changing times and without necessary preparations for times of crisis.
The article highlights the importance for small, family-run businesses to think outside of the traditional box. This includes understanding how the business is valued in the market and the value of physical assets like machinery and equipment or intangible assets like customer base or intellectual property, all of which can help small business owners to think more strategically and plan accordingly for tough economic times.
By: Present Value
Valuing Intellectual Property
For many businesses, intellectual property (IP) assets, such as patents, trademarks, copyrights, trade secrets, software, customer lists, and research, are an important part of their value. Because these assets are intangible, meaning that there is high degree of uncertainty regarding their future worth, it can be extremely difficult to determine their value. However, it is increasingly becoming more necessary for businesses to establish the value of IP assets, including mergers and acquisitions, for tax or litigation purposes, or for an ongoing business valuation, or liquidation.
An accurate valuation of IP assets requires that the appraiser look very carefully at the following factors:
- The nature and size of the market to be served
- The competitive advantages of your asset
- The price customers are willing to pay for your solution and related value proposition
- Costs of implementing the technology or products
- The impact of the technology on the processes used by the business to service its customers
- Length of time before new competition will enter the market
There are three methodologies that generally are used to value IP assets:
- Cost Approach
- Market Approach
- Income/Relief-From-Royalty Approach
There is overlap among these approaches, and an appraiser should use all three of these methodologies to determine the valuation of an IP asset. (We will cover these valuation methodologies in another post.)
Make sure to select a competent appraisal firm that follows recognized standards for the valuation of intellectual property.
By: Present Value
C Corporation to S Corporation Conversion
One of the big questions you have to answer for yourself when considering incorporating your business is whether to classify yourself as a C corporation or an S corporation, also called a subchapter S corporation. This decision will have a big impact on the way your business is taxed. The main difference between the two is that a C corporation pays state and federal taxes on its earned income and shareholders are taxed on earned dividends. This is called double-taxation. An S corporation pays no income taxes. Instead, the owners of the business, the shareholders, pay taxes on the company’s profit. This is a pass-through model.
C corporations may find that they can realize significant tax savings by converting to S corporation status. To convert from a C corporation to an S corporation, you’ll have to file a Form 2553 with the IRS. This is something that should be discussed with your tax advisor because their experience may help you avoid the common pitfalls of C corporation to S corporation conversion. One of the things they’ll consider if this question arises is the value of your business, including goodwill, which we discussed here in our post about the Small Business Association. It is very important that a thorough business appraisal be conducted prior to restructuring in order to fix the value of the corporation’s stock, assets, and goodwill.
By: Present Value
Insurable Value
For any business, it is important to carry various forms of insurance for things like property and equipment. Although an insurance company will establish its own value in order to determine the amount of coverage that is necessary to obtain on their assets, it is also important the business owner knows the insurable value of his/her assets, including buildings and equipment. This type of valuation can be used by businesses and their insurance providers in order to determine the proper amount of insurance to be carried.
For these purposes, an appraiser can determine the proper amount of insurance to be carried to assist in recovery in the event of loss and establish a basis for preparing the required proof of loss in the event of a catastrophe.
Understanding the insurable value of a business can also be helpful for a company that is looking to borrow money to document insurable value because it can give a lender additional peace of mind regarding a loan.
By: Present Value
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