By: Scott Lieberg, CBB, CMSBB
Valuing businesses is an advisory service we here at Sunbelt offer our clients. This multi-step process involves hours of work to establish a price for sale. Having a valuation, produced by seasoned professionals, facilitates and supports the sale process.
Using tax returns, P&L’s, balance sheets, and other business specific documents, we arrive at the adjusted earnings of the company. Buyers are looking for the revenues that are available after recurring expenses are paid and non-business expenses are added back. The next step is to analyze the business activity of the company being valued and develop projected earnings.
Coupled with earnings, we adjust the Balance Sheet, looking at changes in working capital and performance ratios. These ratios include liquidity, turnover, debt capacity, etc.
We then work toward our calculation of value using several methods. These methods are the Adjusted Asset Method, the Discounted Future Earnings Method, and the Comparable Transaction Method. Careful selection of sold comparable companies, insuring similarity, is critical to building a sound data basis for value. Digging into the business activity of the comps is essential. As the complexity of the business being valued rises, so the task of selecting and weighting comps. Weighting is a seasoned judgement call.
The last step and most difficult is the reconciliation of final values. Each method is assigned a value, a weight, and a confidence level. The market experience of the preparer is never so important, as in the valuation reconciliation.
At Sunbelt, the five of us have over 130 years of experience. Put us to work on your Valuation needs.