Archive for the ‘Business Valuation’ Category
… And Then Get Back to Living
Few people want to think about their own mortality; we’d all rather assume that we have all the time in the world. But in reality, none of us knows what tomorrow will bring, which is why planning for what you leave behind when the inevitable happens is so important.
The Wall Street Journal’s blog today published an article about the difficulty caused when a business owner died suddenly without a succession plan in place. We’ve written about the importance of succession planning here, here, and here, but a real-life example like this helps underscore the idea.
The story, which you can read here, describes a financial advisor in his late 50s who was the sole owner and advisor in his company. When he died suddenly, his clients were left with no one to handle their accounts and ended up scrambling to find a new money manager. The irony here is that financial planners always stress to their clients the importance of succession planning, especially in sole proprietorships.
The article goes on to discuss another financial services firm with a middle-aged, sole owner that lost two huge clients who were concerned about what would happen to their accounts if their advisor died suddenly. This proves that succession planning is important for the health of a business even before the plan would be put into action by a death. Perhaps if that business owner had a plan in place, he could have reassured those clients and kept them on his roster.
If you’re putting a succession plan in place, remember that a thorough business valuation is an important first step.
By: Present Value
SBA Starts Waiting List for Small Businesses Seeking Loan Breaks
On Friday, the Small Business Administration announced that it had just about run out of money for the small business loan incentives – 7(a) and loan fee reductions – enacted last year by the economic stimulus package, and that a waiting list will be established for those small businesses seeking credit should more money become available.
These incentives were designed to reduce the fees on loans to small businesses and offer a 90% guarantee to banks that make SBA loans, making loans less expensive for borrowers and less risky for lenders. The normal guarantee for the average 7(a) loan is 75%.
The original $375 million in funding set aside last year for these two measures initially ran out in November, so the SBA set up a waiting list. In December, when another $125 million was put toward keeping the programs running through February 2010, there were more than 1,000 businesses on the waiting list.
The Senate voted to advance a $15 billion job-creation package Monday, but the funds for another extension of the SBA loan incentives were stripped from the package prior to the vote. So as of now, it remains to be seen if those businesses on the SBA waiting list will receive their loans.
These SBA loan breaks revived SBA lending, and enabled small businesses to get access to capital that they had previously been unable to get. Because of the breaks, 7(a) lending is up by 90% since the stimulus plan was enacted despite the fact that other loan activity has declined. Small business groups and many lenders believe these incentives are key to economic recovery and are urging Congress to appropriate the funds to keep the program alive.
Present Value LLC is a certified appraisal company and provider of business valuation services.
By: Present Value
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
Five Myths of Business Valuations
SCORE, an informational organization that caters to small businesses, has a great article on its website about the myths of business valuations. The myths it lists are:
Myth 1 – Valuing a private business should only be done when the business is ready to be sold or a lender requires a valuation as part of its due diligence process.
This isn’t true. Effective financial planning requires regular valuations. Especially if a change in ownership is expected. We’ve written about the different occasions, other than at the time of purchase or sale, when a valuation might be necessary here, here, and here.
Myth 2 – Businesses in my industry always sell for two times annual revenue (the revenue multiple). So why should I pay someone to value my business?
Often, the numbers you see when determining sale prices in your industry are median sale prices. Your business could have a value much different than the median sale price in your industry.
Myth 3 – A local competitor sold his business for three times revenue six months ago. My business is worth at least this much!
A lot can happen in six months. Economic conditions can shift quickly and you may be selling your business in a much different environment than your competitor did six months ago.
Myth 4 – How much a business is worth depends on what the valuation is used for.
A business’ worth is determined by its fair market value, which, if determined properly, should be the same no matter what the valuation is used for.
Myth 5 – Your business loses money, so it is not worth much.
Sometimes, it may just appear that your business is losing money. When you take a look at discretionary expenses, you will likely find quite a bit of cash generated by your business.
Don’t believe the myths. Get the facts about your business’ worth with a professional business valuation.
You can read the full article on the SCORE website here.
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
Adjusting Your Exit Plan
We’ve written in the past about the importance of small business owners having comprehensive exit strategies planned. You can read our post on exit strategies here. Equally important are succession strategies, which you can read about here.
Last week, The New York Times’ “You’re the Boss” blog posted an article on exit strategies. It implied that the economic hardships of 2009 may require business owners to put re-thinking their exit strategies at the top of their 2010 to-do lists. Or it may have made business owners without an exit plan understand the importance of having one in place. The post says that because the median sale price for private businesses fell between 2007 and 2008, and because once all the numbers are crunched, there is expectation that we’ll see there was a further drop in 2009, business owners with a plan to sell immediately may need to put off that transaction in order to get the most out of the businesses they worked so hard to build. You can read the post here.
Of course, in some cases, business owners may have no choice but to sell before the marketplace improves. We discussed one such case, divorce, just last week. The most important step in planning an exit strategy is understanding the worth of your business, and it is important to work with an appraiser who understands all the intricacies involved in determining its value.
By: Present Value
Divorcing a Business
In a previous blog, we covered the topic of divorce appraisals. It addressed the importance of appraising a home when the owners of the property are divorcing.
But a divorce when a business is involved is even more complicated. As noted in the article Survey: Divorce is Bad for Business, “If a company is owned by a couple, a divorce can paralyze the business and create divided allegiances among employees and customers. It could also jeopardize a family’s wealth and the owners’ retirements.”
Many of the same principles of a divorce appraisal apply when a divorcing couple owns a business. The business can be sold off and the proceeds divided; all of the joint property can be appraised and divided between the couple according to value; or one party can “buy out” the other.
Irrespective of which option is chosen, one or both parties should order a business valuation that is professional, clearly written, and defensible in court. Contact Present Value LLC for all your appraisal and business valuation needs.
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
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
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