The Valuation of Your Business - The ASG Way

 

Valuing a business requires time, patience, knowledge and know how because there is no one valuation formula that can be applied that will result in the correct value of your company. The best valuations are not a single number, but rather a range of value that indicates the differences in value as perceived by potential buyers. At ASG we take all the time needed to provide you with this business valuation range based on all the information available to us… and we do this at no charge to you!
 
The first step in the valuation process is recasting the financial statements. For all of you non-accountants out there, recasting is done to find the EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization). Basically, all of the amortizations, income taxes, excess owner compensation, interest, and depreciation are added back into the earnings. Then, interest income, understated expenses and the like are deducted from earnings. The resulting number after the additions and deductions is the EBITDA, a common financial acronym to describe profit before taxes.
 
The EBITDA (also known as stabilized earnings), as well as potential buyers’ desired ROI (Return on Investment), is used to help develop a range of value for the company. Of course requirements for ROI vary significantly from buyer to buyer, not to mention the industry and size of the company, so this will affect the valuation as well.
 
Determining the net assets is also important when valuating a business. All of the assets a buyer will receive with the purchase of the company, as well as the liabilities the buyer will assume, affect the value of the company and must be included in our valuation approach. Every business varies significantly in net assets, with some having significant assets and others having very few. As a result, ASG will determine what approach to use to value the business appropriately and effectively. The valuation will also be affected by the fact that more than 95% of transactions are financed, and lenders have their own requirements for valuation. ASG works to ensure values fit the lenders' formulas so that the buyers will be approved for the necessary funding and successfully complete the sales transaction. Without this level of diligence, many transactions could fail.

 

Valuation Conclusion

Valuing a company properly and accurately requires constant involvement in the Mergers & Acquisitions market and knowing the methodology buyers and lenders use to approach valuations. Interest rates and market conditions affect valuations, as well as lenders and buyers approaches, so constant monitoring of the day to day activities of the M&A market is critical. At ASG we use our 25+ years experience in the field to provide you with a complementary valuation range for your business.

 

To make an appointment with one of our business brokers for a free business valuation, please call 858-320-0474 or email a business broker.