The Process of Business Valuation

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Author/Moderator: Lance Wallach, CLU, CHFC, CIMC

Excerpt:

By Grant Webb. To become a CPA who performs business valuations means you’ve truly mastered your trade. Bisk trains accountants to become CPAs to broaden the scope of one’s possible accounting careers.

Whether you are looking to court investors for expansion, selling, or just want to accurately gauge the value of your business, a formal business valuation is an important tool. Many business owners are so focused on building the company, staying ahead of competition, and keeping aware of market trends that they seldom stop to take a good look at what they have accomplished. A business valuation offers the opportunity to put a value on the entire business and may be used as a lens through which to focus future efforts.

The Process of Business Valuation

In general, a CPA will provide a list of documents you will need to assemble in order for the process to begin. This necessary as there are many different methods for business valuations. You will generally fill out a questionnaire and meet with the CPA who will then compile all the information into a formal business valuation. Sometimes this is completed entirely online. Follow-up may be needed. For a small company the process can usually be completed within a month or less. The main documents you will need regardless of valuation method are your tax records for the past several years, any other records regarding cash flow, and any recent investments/improvements that have been made. 

If there are multiple stakeholders in the company’s assets you will need to provide that related supporting documentation, as well. The valuation takes into account current economic conditions and can also provide the value for each stakeholder’s part of the company based on the documentation you provide.

While many business owners conduct a valuation for personal knowledge, others need it when one partner wants out, or if a third party has made an offer to buy it, or if a divorce is looming. Having a highly regarded and experienced CPA do the job is important since the findings may have legal implications, especially if the dissolution of a partnership is part of the motivation for the valuation.

The Benefits of a Business Valuation

Knowing what your business is worth based on the current economic conditions is important as a tool to clarify future actions. You may decide now is not the time to sell, or you may look to sell the business in an area where similar businesses are needed and you may secure a better deal.

If a partner wants out (or in), a business valuation will clarify how much money each person’s part of the company is worth. This may help to mitigate conflict when someone wants out of the business and is asking for more than what the other owners think is fair. Looking at a business valuation in the context of a whole business strategy plan, the valuation process may serve to clarify fertile areas of expansion. The business valuation process can be used as a time to re-group and strategize for future success. Some business owners choose to use the valuation process in conjunction with meeting formally with strategy consultants.

In markets enjoying rapid growth, having a recent valuation complete may mean that if an eager buyer comes knocking you will have a solid ball park estimate of the range of offers you will seriously consider. A business valuation may also be helpful if you are looking for ways to streamline your company and sell off part of it or possibly buy out another owner. Often the process begins for one reason or other, but then evolves into a more comprehensive look at overall short-range and long-range planning. Embraced fully, the business valuation process can be a powerful part of large plan to build a more focused company goal set.

Other Considerations

For business owners seeking to obtain a comprehensive look at what their business might be able to sell for in today’s economy, a business valuation completed by a certified CPA may be a strong tool for clarifying perspective and direction. In the case of mitigating internal squabbling among stakeholders, or in the case of a pending partnership split, the process is invaluable. While some business owners come to a business valuation as part of pending litigation, such as a divorce, others choose it voluntarily. As such, the business valuation becomes a strategic tool for leveraging more power in future company investment, expansion, and development. While many methods exist for assessing a business valuation, the assistance of an experience and full certified CPA may be your best ally in securing the most accurate, dependable, and respected business valuation.

ABOUT THE AUTHOR: Lance Wallach, National Society of Accountants Speaker of the Year.
Lance has written numerous books including Protecting Clients from Fraud,
Incompetence and Scams published by John Wiley and Sons, Bisk Education's CPA's
Guide to Life Insurance and Federal Estate and Gift Taxation, as well as AICPA best-selling
books, including Avoiding Circular 230 Malpractice Traps and Common Abusive Small
Business Hot Spots. He does expert witness testimony and has never lost a case. Contact
him at 516.938.5007, wallachinc@gmail.com or visit www.taxaudit419.com or www.taxlibrary.
us.

Copyright Lance Wallach, CLU, CHFC
More information about Lance Wallach, CLU, CHFC

Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.