There can be many reasons why business owners may require a business valuation. Sometimes, business owners want to sell their businesses due to family reasons, retirement, health, or divorce. And sometimes, they are forced to sell their businesses due to cash flow problems. Regardless of the reasons why they want to sell their businesses, the real worth of the business depends on numerous factors. And each factor should be taken into the consideration when the business valuation is conducted. Some of the factors are: the size of the business and profitability, customer concentration, competition and demand.
You must know that you cannot perform a business valuation yourself. It is very much like asking a mother how talented her child is. Neither mother nor a business owner can maintain a required distance to answer the question objectively. Therefore, it is suggested that you should get the business valuation done by a professional to obtain the most accurate valuation. Now a question is where to find a business valuation firm. Though there are many firms that provide business valuation in NY, you cannot trust all. When it comes to hiring a business valuation expert for your business, you should always try the find an experienced professional who the right experience, certifications and professionalism.
Look for a firm that has analysts with extensive experience across many industries such as manufacturing, transportation, professional services, and other industries. Also it is important the Valuation firm provides and in depth report that follows industry standards. It is also important to find out about the cost to complete the business valuation.
A good professional works meticulously to offer you an up-to-date business valuation report so that you can determine the best value of your business. When you are going to hire a company for the business valuation services, you should go for a company that offers independent, objective value options that adhere to the National Association of Certified Valuation Analysts (NACVA) standards. You can utilize the help of the Internet to search for a good company. You can search for business valuation ny, business valuation Chicago, business appraisal Washington, or any other location in the US.
Business valuation is a process and a set of procedures used to estimate the economic value of an owner’s interest in a business. Valuation is used by financial market participants to determine the price they are willing to pay or receive to effect a sale of a business. In addition to estimating the selling price of a business, the same valuation tools are often used by business appraisers to resolve disputes related to estate and gift taxation, divorce litigation, allocate business purchase price among business assets, establish a formula for estimating the value of partners’ ownership interest for buy-sell agreements, and many other business and legal purposes such as in shareholders deadlock, divorce litigation and estate contest. In some cases, the court would appoint a forensic accountant as the joint expert doing the business valuation.
Before the value of a business can be measured, the valuation assignment must specify the reason for and circumstances surrounding the business valuation. These are formally known as the business value standard and premise of value. The standard of value is the hypothetical conditions under which the business will be valued. The premise of value relates to the assumptions, such as assuming that the business will continue forever in its current form (going concern), or that the value of the business lies in the proceeds from the sale of all of its assets minus the related debt (sum of the parts or assemblage of business assets).
Standards of Value
Fair market value – a value of a business enterprise determined between a willing buyer and a willing seller both in full knowledge of all the relevant facts and neither compelled to conclude a transaction.
Investment value – a value the company has to a particular investor. Note that the effect of synergy is included in valuation under the investment standard of value.
Intrinsic value – the measure of business value that reflects the investor’s in-depth understanding of the company’s economic potential.
A business valuation report generally begins with a summary of the purpose and scope of business appraisal as well as its date and stated audience. What follows is a description of national, regional and local economic conditions existing as of the valuation date, as well as the conditions of the industry in which the subject business operates. A common source of economic information for the first section of the business valuation report is the Federal Reserve Board’s Beige Book, published eight times a year by the Federal Reserve Bank. State governments and industry associations also publish useful statistics describing regional and industry conditions.
Business people may need to conduct business valuation for a number of reasons including business sale, estate tax planning, estate tax valuation, divorce, business purchase price allocation, collateral documentation, litigation and documenting that a sales price is equitable.
Despite the fact that there are accepted and recognized business valuation practices, valuation is always subject to individual opinion and can be swayed hugely by the ulterior motives of the appraiser.
For example, someone wanting to sell his business may conduct a business valuation to determine an asking price. He obviously wants to get the most money for the business as possible. A potential buyer however, wants to purchase the business for the least amount of money possible. He may conduct his own business valuation and offer a much lower number. Thus, occasional disputes over business valuation are inevitable.
In situations such as these it is only practical to turn to the experts for resolving discrepancies in value perception; professional sports.
Final-offer, or “baseball,” arbitration has been employed primarily to settle public sector labor contract issues where labor does not have the right to strike and, within major league baseball, to resolve salary disputes for players who are not eligible for free agency and can bargain only with their current clubs.
Baseball arbitration requires that the arbitrator choose the position of one party or the other in the final decision. While the reward for winning in baseball arbitration can be large, the risk of losing (and being subjected to the other party’s valuation) is also substantial. This risk/reward dichotomy often produces a strong incentive to find ways to compromise with the opposing party and make concessions that otherwise would not be made.
Applying this principle to business valuation generally has the same ultimate result, that of closing the gap between the final offers of both parties.
It is the uncertainty inherent in baseball arbitration that accounts for the process working so well; if the arbitrator’s expected value were known for certain, all business valuation submissions would equal this number, eliminating risk of losing the arbitration, but also giving up potential rewards. Therefore, the best strategy to employ in the arbitration process is to estimate the arbitrator’s expected value. This causes the parties to look at business valuation in a more removed, objective light, as the arbitrator would do.
When the expected valuation has been estimated, the parties weigh the risks and rewards that result from submitting a value in the arbitration that differs from the arbitrator’s expected value. This involves a level of gamesmanship-if a party’s submitted value deviates too far from the arbitrator’s value, that party will lose. Therefore, each side will tend to move closer to the expected value as the arbitration progresses, making baseball arbitration an effective method to overcome disputes in business valuation.
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In today’s competitive times, there are no margins for errors when it comes to operating your business. Among other things, valuing your business truly is imperative. Business valuations come into the picture in many different scenarios including partnership disputes, divorce and business sales. The next question may be “Where to get business valuations?” You don’t need to look any further than independent, certified business valuation firms. Before proceeding further here are just some of the cases in which business valuation can come into contention:
Business Sales, Mergers & Acquisitions: For when you are looking to buy and sell your business.
Buy-Sell Agreements: To provide a Certificate of Value in firms with two or more owners, when one of the shareholders voluntarily or involuntarily relinquishes ownership.
Divorce/Matrimonial Settlement: To determine the value of a company that is a part of divorce settlement.
Gifting/Estate Planning: When the company is involved in gifting of closely held stocks, and succession planning.
Partnership/Shareholder Buyouts/Disputes: When business value comes into question during partnership buyouts and its shareholders’ disputes.
Fairness Opinion: A document which states the fairness of a transaction from a financial point of view.
Litigation: Business valuations come into contention in different types of litigation, be it estate litigation, minority shareholder suits or corporate litigation. In every case, knowing what the business is worth comes in more than handy.
Tax Allocation and Reporting: An independent business appraisal is required when you are filing certain types of tax returns.
With business valuation being such a crucial element in so many scenarios, it is important that you hire the best business valuation firm to do the job for you. They will conduct a proper valuation of your business which will include a full analysis of your business, as well as that of the industry and the economic conditions of the location you operate in. These will include a review of financial trends, company risk profile, growth, profitability, sustainable growth and other relevant information. So, get in touch with the best business valuation firms when you are in need for a business valuation.
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Business valuations are on the rise for uses other than buying or selling businesses. Business valuations are in fact a critical up front part of any business transaction. When asking A Neumann and Associates, a premiere business broker in New Jersey, business transactions are not the only reason business owners need business valuations. Many business owners can benefit from a business valuation and in many cases a certified valuation is required.
One such case is in a partnership change or split. True market value must be determined in order to split up or process a buyout of ownership. Similarly, in the case of a divorce a business valuation is often mandatory. Many partnership and changes in ownership require the value of the company to be determined.
What about financing, recapitalization and restructuring debt? Any lender is going to want to assess the value of a business, which makes it a requirement in New Jersey to obtain a business valuation as well as all across the nation. Estate planning is another situation were business owners obtain a valuation.
These are only a handful of reasons business owners need a business valuation. One increasing trend is for busines
Items that drive value in a business make a buyer comfortable and confident in a value and their offer. Things like diversity in products, services, suppliers, customers, etc drive value. Low debt, low competition, growth trends, opportunities to improve revenue, products and services offered, lower expenses, etc are all value drivers. There are too many to list and as mentioned they vary by industry and for every company. Improving these value drivers can significantly increase the true market value of a business, so much that the cost to obtain a certified business valuation every year or more is next to nothing, especially when considering the alternatives and potential decreases in value. The benefit can be tremendous.
s owners to obtain a business valuation to get a current snapshot of their business, competition, industry, economy and drivers of value. The information in a business valuation is extremely informative and savvy business owners analyze this information and create strategies around them to improve the value of their business. Many business brokers recommend doing this periodically as the expense of a business valuation is very small compared to the improved value of a business that can result from even the smallest changes. Let’s look at what is included in a business valuation.
There are a number of calculations, no single calculation can determine true market value of a business nor can a bunch of them. Factors such as competition, lending, current market and economy, industry, government, trends, etc are all items that impact value. Similar and recent sales of businesses also impact value. There are also many value drivers. These value drivers are different for every industry and every business.
The Home Valuation Code of Conduct, HVCC, was enacted on May 1, 2009, by the Fannie Mae and Freddie Mac Foundations and the Attorney General of New York. The HVCC is intended to prevent individuals and organizations from having any influence on the requested appraisal itself.
One way the HVCC limits the inflationary practices of appraisals is by requiring the lender to provide the borrower with free copies of the appraisal within three business days.
Lenders are now required to randomly select 10% of appraisals, test them, and report any misconduct to Fannie Mae or Freddie Mac. Estimates of in-home appraisers should not be the basis of their compensation, and the appraisers should be independent of the sales staff of the lenders. State agencies are notified when infraction occurs in the appraisal process.
What is subject to the HVCC? All 1-4 Family loans sold to Fannie Mae or Freddie Mac must follow guidelines of the HVCC. However, the HVCC still is not applicable to FHA, VA, and jumbo loans. Private assignments, such as divorce appraisals, bankruptcy appraisals, tax grievance and tax appeal appraisals, are not affected by the HVCC. The code only applies to appraisals, not affecting automated valuation models, broker price opinions, or tax assessments.
Due to misunderstandings, there is some confusion about the rules and regulations of the HVCC and these facts may clear some of this up: While the HVCC does not specifically prohibit communication between the appraiser and the real estate agent, the borrower is restricted from providing money to the appraiser. Lenders may, however, authorize third parties to select, retain, and provide payment for compensation of the appraiser.
The HVCC does not require the use of AMCs, Appraisal Management Companies. Appraisals may be ordered by lenders from individual appraisers. As long as mortgage brokers are selecting, retaining, or providing payment of compensation to the appraisers, they are allowed to use specific AMCs directed by lenders that use a group of authorized AMCs.
The code does not permit lenders to accept appraisals prepared by appraisers that are ordered by mortgage brokers, nor does it allow mortgage brokers to provide lenders with an approved appraiser list to use when ordering appraisals for that specific broker.
The HVCC puts restrictions on not only the end user, but also every individual and company working in the Home Valuation industry. Fannie Mae and Freddie Mac are the only organizations to implement such regulations; however, many government organizations have pending policies that will also affect liability to both investors and lenders.
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The decision of selling a business is always a tough one for business owners. Common reasons to sell are retirement, health issues, wanting to pursue another opportunity or wanting to capitalize on a good competitive market. Obtaining a Business Valuation prior to a Business Sales or Partnership buyout can have many advantages and provide valuable insight. It can help you identify areas of weakness and provide recommendations on how to improve them and build value in your company for the future. It can also be used in negotiations when one partner may want to buyout another partner. These situations can often be very contentious and a neutral valuation can definitely help partners figure out fair and equitable resolution.
A Business Appraisal can be very useful for Estate Planning Purposes. It can help with succession planning like passing a business from a parent to a child. It is also required to have a business valuation when filing an Estate or Gift tax return if the party owned a business. Many lawyers and financial advisors recommend that their clients get a business appraisal every couple of years. A professional business valuation or business appraisal firm can help a business owner answer many questions about when or if it makes sense to sell their company. Many legal situations like death or divorce require a business appraisal if the party was a business owner.
A professional Business Valuation firm will generally require you to provide three years of financial statements, including Profit and Loss statements and balance sheets, and will need you to answers some key financial and operational questions so they have accurate information to perform the appraisal. It is important to find a professional and experienced CVA certified firm to prepare the Business Valuation. When looking for a professional firm, look for a firm that is experience, has done a wide range of valuations for different types of companies and for different purposes.
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