One of the methods we use to determine value is the analysis of recent transactions that are comparable to our clients’ businesses. This is important because it allows us to see not only what buyers are paying, but the types of businesses they are focusing on.
Discounted cash flow analysis is one of the most important methods we use to value our clients’ businesses. Using our 3- 5 year pro forma, which includes full income statements, we take projected earnings and discount them back to today’s dollars using a discount rate that is based on a number of factors. Any valuation method used though provides us with a baseline number only, ultimately the value of any company is what buyer will pay.
The first step in our process is to conduct a thorough business valuation with the goal of determining our opinion of the value range based on our evaluation methodologies. We believe it is vital that clients understand the enterprise value range of their business prior to going to market. What is vital to understand is that the true value of any business is what a buyer will ultimately pay. Our Enterprise Value opinion is simply a guideline that we use to compare to offers.
Fairness opinions are provided to clients who are only interested in the business value today and are not necessarily interested in taking their company to market. These can be used for a variety of purposes.
One of the most important steps in any accurate business valuation is recasting the company’s historic financials to remove items that are not necessary to the ongoing operations of the company. Often these include adjustments to owner salaries, removal of one-time, non-recurring expenses, and adjusting for discretionary spending (owner’s perks) that would most likely not be included under new ownership. Recasting is an extremely important first step because projected earnings of the company could be understated substantially if historical financials are not recast.
Also known as off-balance sheet assets, intangible assets, although impossible to directly value, form the core of what may attract specific buyers to your business. So we are very careful to make sure through our sales documentation that they are clearly highlighted to buyers. Our deal team has a skilled understanding of what makes your business unique.
Who are your key clients and why are they important to your business? If you lost one (or more) what would that do to your company’s earnings? Our team will walk you through this analysis and ensure that your key clients are 'key' to you for the right reasons. For a rundown of the effects of a key client’s behaviour on your business, get in touch with one of our professional advisors.
In order to create an accurate pro forma for our evaluations, it is important for us to understand the markets our clients serve and trends in the industries in which they operate. We use a number of tools to determine the future growth of key end markets and industries and use that data to aid us in our pro forma development.
Equity firms are required to value their holdings on a regular basis. These are also necessary when the equity firm is considering selling a holding and needs to understand the value of the business prior to approaching buyers.
After we recast our clients’ historic financials, we then create five year pro forma projections. It is important to realize that buyers are acquiring your company’s future, not its past, so projecting out five years is critical in order to obtain maximum value for your company. Our goal is to create realistic pro formas that allow buyers to clearly see our clients’ potential growth opportunities.
Understanding the ongoing capital needs of a business and ensuring that it has adequate funds to expand, is vital to our financial analysis. We need to make sure that our pro forma financials are not only accurate but can be adequately met by the ongoing capitulation of the business through its future earnings.
Our evaluation process also includes a full analysis of a client’s Strengths, Weaknesses, Opportunities, and Threats (S.W.O.T). Not only is this helpful in identifying their intangible assets, it is also important in our Roadmap for Enhancing Value program that we provide to every client that decides to enter our hold and grow program for future sale.
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