VR offers business valuations free of charge, but we often recommend that sellers invest in more sophisticated third party valuations that develop more precise recommendations regarding selling price. There is nothing more important in the selling of your business, but to do this accurately. We work with a number of excellent, nationally recognized business appraisal firms. The cost of these independent reports will vary depending on the size of the business and scope of the appraisal. In all cases, though, the cost will be reasonable and will be fully reimbursed at closing. The reports can generally by grouped into the following three categories:
Value Analysis
This is a limited scope analysis that uses the income approach, the asset approach, and the market data approach to determine the fair market value of the business. This report is intended to establish the value of “Main Street” businesses. The report is approximately 40 pages and the turnaround time is 14 days after receipt of all documentation, and provides a summary of how the valuation conclusion was determined. Since most “Main Street” businesses are bought and sold on a multiple of cash flow, the basis of this valuation is Seller’s Discretionary Earnings (SDE). The analysis considers primarily historical and current financial performance and very little time is spent with the balance sheet. The report contains the following:
- Historical Income Statement
- Adjusted Cash Flow Statement (SDE)
- Comparable Sales (Market Approach)
- Summary of Common Size Financial Statistics
- Summary Review of Each Valuation Approach
- Valuation Conclusion and Justification
Formal Valuation
The Formal Valuation is a limited scope business valuation intended for businesses with sales ranging up to $10,000,000. The report is approximately 50 – 70 pages, takes about 14 days to complete and provides detailed review of all aspects that were considered in determining the final valuation conclusion. The bulk of the report is the financial analysis and the valuation conclusion is based more on EBITDA rather than SDE and spends more time on current and future financial performance of the company than it does on historical performance. In addition to the earnings of the company, the balance sheet is also a key component of the analysis. The report contains the following:
- Historical Income Statement
- Adjusted Cash Flow Statement (SDE)
- Complete Financial Statement Analysis
- Common Size Analysis
- Ratio Analysis
- Economic Outlook
- Comparable Sales
- Detailed Description of Each
- Valuation Approach Considered & Used
- Valuation Conclusion
Merger & Acquisition Valuation
The Merger & Acquisition Valuation is a comprehensive business valuation for transactional purposes and is developed in accordance with the Uniform Standards of Professional Appraisal Practice. This valuation is intended primarily for mid-market companies with revenues in excess of $10,000,000, as well as for those companies that expect significant growth in the near and intermediate term. The basis of the valuation is future earnings with the historical performance playing only a limited role in the valuation conclusion. The selection of guideline companies comes from both the private and public markets, which tends to make the valuation conclusion more aggressive. This report is completely customized, ranges from 80 to 150 pages in length and takes about 3 – 6 weeks to produce.