Los Angeles Business Appraisal Process
Ever wonder “How a buyer will approach the value of a privately owned business”? Acquisition Services Group, a Los Angeles Business Broker and Business Appraisal firm, utilizes a disciplined process to appraise large or small businesses.
Step 1: Calculate the historical Cash Flow after “Recasting”
Buyers and Lenders understand that the Net Income on the Federal Tax Return is not an accurate assessment of a company’s true cash flow. A process known as “Recasting” needs to occur, which basically adds back into earnings non-cash expenses (Depreciation and Amortization), as well as expenses that may be for the discretionary benefit of the owner (Interest, Travel, Entertainment to name a few).
Step 2: Determine the Multiple of Cash Flow for the Business Appraisal
Different Buyers are going to perceive different value in a business. Financial Buyers will crunch the numbers, and then depending upon their perception of the risk calculate a return needed on their Investment (ROI). If they require a 33% return on their investment, they will apply a three (3) multiple to cash flow. A Synergistic Buyer will have a lower perception of the risk because they are already familiar with the industry. They may only require a 25% ROI on the same business and therefore apply a four (4) multiple to the cash flow.
The Balance Sheet will also become an important part of the business appraisal exercise. Naturally the Buyer expects to receive all the equipment and fixtures, etc. They also expect to receive sufficient working capital with the transaction such that they do not need to inject any capital into the company after acquisition. Working Capital is typically made up of Accounts Receivable and Inventory. ASG will provide an indication of the likely Working Capital requirements of a Buyer when we present the valuation range to a prospective client.
Experience Matters with a Los Angeles Business Appraisal
Valuing a company properly and accurately requires constant and current involvement in Mergers & Acquisitions markets and knowing the methodology buyers and lenders are using in their own valuations. Our firm has been doing Los Angeles appraisals for over 40 years.
To make an appointment with one of our Los Angeles principals for a free business appraisal, please call 858 736 4054 or complete and email the free business appraisal Form.