Aitx performs professional business appraisal services for business sale purposes, as well as those that conform to IRS Revenue Ruling 59-60. Various types of valuation are used for estate planning, the potential sale of a business, an IRS issue, partnership conflicts, divorce, financing requirements and other reasons.
Business valuation, however, is never an exact science. And when it comes to valuing a closely held, private business it becomes more a mixture of art and science. It is not uncommon to value a business by more than one method and assign a weighted average of the various methods used. In the end, a business is ultimately worth what a buyer will pay for it. Nonetheless, there are ways of estimating and justifying a fair price.
A common misconception is that business valuations well defined and subject to strict numerical formulas. While considering objective data, (i.e., the company’s financial statements), valuations at first glance would appear to be straightforward. But it really isn’t that simple and multiple factors add uncertainty. Unlike transactions in the public markets (or most real estate deals), there are no public records available that list the actual prices buyers paid for similar privately held businesses. Furthermore, there are parts of a valuation that are intangible such as goodwill that make up a significant part of the final number. Additionally, every business has its own unique set of factors (growth potential, lease terms, trends of the particular business, environmental or legal issues, etc.) that can make it difficult to quantify and exact value.
When we engage a business owner to perform a valuation we take a very methodical approach involving four key steps
Phase I – Preliminary Interview:
We work with the owner to get a clear understanding of the client’s requirements and the specific purpose of the appraisal. Upon completing this preliminary assessment, Aitx will define the scope and terms of the valuation engagement.
Phase II – Data Mining:
Once we understand the reason behind the valuation and the goals, we start the process of compiling the information we need about your company through management questionnaires, interviews, document request lists and a tour of your facility.
Phase III – Financial Analysis and Industry Research:
At this point we dive deeply into the financial statements of the company. We look for historical trends and newly evolving opportunities. We will look at company documents, customer contracts, vendor contracts, leases, tax returns other data. While the company’s raw data tells part of the story, we also research the relevant economic factors, industry trends and current performance, potential risk factors, comparable businesses and recent relevant completed transactions. Throughout the process we work with our client to understand, recast and project the financial information and performance in accordance with likely trends and opportunities.
Phase IV – Valuation:
The appropriate valuation methodologies are selected and the likely range of value of the business is estimated by incorporating and synthesizing all of the information and insight attained during the prior phases of the process. Multiple methodologies are discussed and the resulting assumptions and outcomes are discussed and reviewed in a draft report with the client. Only after working jointly with the client to be sure nothing has been missed or assumed in error do we issue the final report.