Posts Tagged ‘business appraisals’
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
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
The Appraisal Foundation Announces 2010-2011 Edition of USPAP
On June 9, 2009, The Appraisal Foundation, a congressionally authorized nonprofit organization that fosters professionalism among appraisers by setting qualifications and standards, announced that its Appraisal Standards Board (ASB) adopted revisions for the 2010-2011 edition of the Uniform Standards of Professional Appraisal Practice (USPAP). USPAP are the generally accepted performance and ethical standards for the appraisal profession in the United States. Standards are included for real estate, personal property, business, and mass appraisal.
The new edition is expected to be available in October. However, ASB has issued a Summary of Action that will enable appraisers to become familiar with the changes that are part of the 2010-2011 edition. The changes will take effect on January 1, 2010.
The majority of revisions were made to the ETHICS RULE, the COMPETENCY RULE and STANDARD 3: Appraisal Review, Development and Reporting.
Two of the most significant changes are as follows:
- “A requirement was added to the Conduct section of the ETHICS RULE, stating that, prior to accepting an assignment (and if discovered at any time during the assignment), an appraiser must disclose to the client and in the report certification any services regarding the subject property performed by the appraiser within the prior three years, as an appraiser or in any other capacity.”
- “The appraiser’s obligation to allow a client access to his or her workfile when providing a Restricted Use Appraisal Report was removed.”
Present Value is a certified appraisal company and provides USPAP-compliant appraisal reports.
By: Present Value
Selling Your Business? Get a Business Broker.
So, you’re looking to sell your business or liquidate your assets. First, you need to make sure you have a certified appraisal of your business, machinery, or equipment. But, where do you go from there? In order to simplify the process, get more offers, and get the best price for your business or equipment, you should work with a business broker.
Business brokers work similarly to real estate agents. They can help you with advertising, initial discussions with buyers, negotiations, and the final transaction processes. Most importantly, a business broker can be a decision-making partner during this crucial time for a seller or buyer.
It is essential to realize that deals are being done, despite the current economic climate. Although there is a lot of doom and gloom out there, there are businesses that are making money and looking to increase their opportunities through acquisition or purchase of assets or equipment. These deals are just being done differently than in the past. Because of the current state of the credit markets, buyers and sellers are developing creative deal-structuring strategies to facilitate transactions and satisfy both buyers and sellers.
In order to take advantage of the opportunities that are still out there and make sure that you are getting the most out of the sale of your business and equipment, partner with an experienced business broker.
In addition to valuation services, Present Value provides business and equipment brokerage services. Present Value has an extensive team of business and equipment brokers who help buyers and sellers come together for transactions with businesses, machinery, and equipment. Present Value’s research team also has relationships with hundreds of equipment and business brokers at both national and international levels.
By: Present Value
Navigating Crucial Business Decisions in a Down Economy
In a down market, business owners tend to do one of three things: they close their doors, sit tight and ride out the storm, or capitalize on the opportunity. “One of the most important and most complex decisions that business owners have to make right now is whether to grow or retract in this economy,” said Chris Spinelli, co-founder of the appraisal company Present Value.
Some businesses may succumb to the downturn and will need to sell off assets in preparation for bankruptcy declaration. Others, still stinging from tax time, may simply be searching for ways to save on taxes next year. Still others may be considering an equipment purchase or an acquisition of a struggling business. Present Value can assist business owners in any of these three situations by conducting certified business or equipment appraisals.
“When planning their reactions to the current economy, it’s important for our clients to know the worth of their assets,” said Chris Kinzie, Present Value co-founder. The company recognizes that many of the regulations surrounding equipment appraisals and business valuations can be confusing, and Present Value seeks to provide its clients with the necessary information to help them make informed, prudent business decisions. “We want to help our clients not just make the next choice, but the best choice,” added Kinzie.
Check out our press release on Yahoo Finance: http://finance.yahoo.com/news/Present-Value-LLC-Helps-prnews-15133330.html?.v=1
By: Present Value
Obtaining a Business Valuation Even When You’re Not Selling
Business owners and buyers understand that it is necessary to obtain a business valuation when a business is in the process of being sold or purchased or seeking funding. However, it can benefit private business owners to determine the value of their businesses in order to increase short-term and long-term profitability. If a business owner is potentially interested in selling a business in the future, a business valuation can help to ensure the company will receive the highest price by demonstrating its worth over a period of time. It also can be used as an indicator of business performance, to determine if a business’s strategy is working overall, and to find out how it stands up to competitors in the market.
Valuations combine financial, economic, and market analysis with the strategic understanding of the asset being valued. Business appraisals differ from appraisals of real estate or jewelry in that much of a business’s value can be derived from assets that are not physical, including customer lists, brand names, personal relationships, and other items. Business valuations also often require multifaceted analysis into the risk and return potential for non-tangible and tangible assets that generate value.
A business valuation report generally begins with a description of national, regional, and local economic conditions existing as of the valuation date, as well as the conditions of the industry in which the subject business operates. The value of a business is its fair market value (FMV), defined by the Internal Revenue Service as what a willing buyer will pay a willing seller when each is fully informed and under no pressure to act. A common source of economic information for the first section of a business valuation report is the Federal Reserve Board’s Beige Book, more officially called the Summary of Commentary on Current Economic Conditions, which is published eight times a year.
Business owners need to be able to clearly defend the price of their businesses, and they should know the value of their businesses long before they decide to sell in order to protect themselves. The valuation process requires substantial research, analysis, and tested judgment, which should be overseen by an experienced valuation professional. It is important to consult a valuation professional so that the value of a business will hold up against scrutiny from various parties, including the IRS, the SEC, regulators, courts, opposing council, banks, or potential buyers or investors.
By: Present Value
SBA SOP 50 10 5(A) Changes in Effect This Week
The Small Business Administration (SBA) announced revisions to SOP 50 10 5(A) that went into effect on March 1, 2009. Because the number of 7(a) loans being used for business acquisition has increased, the SBA determined that more specific guidance on the financing of goodwill was appropriate and made additions to SOP 50 10 5(A).
According to the SBA’s definition, goodwill is created when an existing business is acquired and the acquiring entity pays more for the business than the book value of the business’s assets. By paying a premium for an established business, the buyer is relying on the existing business’s established market share to continue because of an established customer base or a premium location.
Because the agency doesn’t have data that specifically identifies goodwill in business acquisitions and there are limited options for borrowers who wish to finance business acquisitions involving a substantial amount of goodwill, the SBA decided that it will review loan applications that do not meet the guidance in the SOP.
For loan applications where the request for 7(a) financing of goodwill exceeds the limits set in SOP 50 10 5(A) because the buyer and/or the seller are unable to finance the amount of goodwill that exceeds the SOP limit, the lender may submit the application to the Standard 7a Loan Guaranty Processing Center (LGPC) for the SBA’s consideration.
The SBA announced that this process will be in place through August 31, 2009. After that time, the SBA will provide further guidance on this issue. During this six-month period, the SBA will collect information from the applications submitted to the LGPC and analyze the types of businesses and transaction structures submitted.
Within this six-month window, it will be critical for lenders and business brokers to get an accurate appraisal of a business’s book value to determine if the SOP 50 10 5(A) revisions could apply to your business transaction. To order a business appraisal, click here.
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