Discounted Cash Flow is another earning value approach to valuation services that involves forecasting the future returns (e.g., net cash flow, income, etc.) and discounting each period back to a present value at a discount rate, which represents the time value of money plus risk involved.
- Why do I need a business valuation?
For many business owners, a significant portion of their personal wealth is invested in their closely held business - yet, they do not know the "value" of this investment. Valuations ensure that accurate values are placed on businesses by using industry standard methods with proven results and confirmed references. An accurate business valuation can help the owner of a business to effectively plan for the future and guide them to increased value and wealth-building strategies. Examples of situations where a business valuation is needed are outlined in our list of client services. Reliable opinions of value are necessary for many reasons and each valuation engagement may require a different approach and utilize different assumptions.
- Why can't my CPA appraise my business?
Although a CPA probably can appraise your business, most accountants do not focus on valuations. Additionally, buyers often believe that the company CPA is too involved in the operation of the business to provide an independent opinion. Additionally, many accountants do not have the necessary valuation training and credentials to produce an accurate analysis.
- How do you value a business?
Our professionals will analyze your financial, marketing, industry and operational data and apply a variety of valuation approaches with an emphasis on determining an accurate fair market value of your firm. We will present the Company's value in commonly accepted terms that the client and other professionals involved can readily understand and benefit from. Read a detailed presentation about our business valuation process.
- What information will you need to prepare the business valuation?
We compile information about the operational aspects, intangibles and risk factors impacting your company through use of information request lists; management interviews; document review; and a facility tour. Our ability to fully understand all financial and operational aspects of your company enables us to better achieve the valuation objective and support our conclusions. This requires a full understanding of the financial statements or corporate tax returns (typically 3 years, plus available interim information) and any associated normalizing adjustments to account for owner benefits; one-time and non-recurring expenses; intangible assets; and the operational and industry risk factors that can substantiate higher or lower valuation conclusions. We work with our clients to develop realistic projections when necessary.
- Is the information kept confidential?
We understand the sensitive nature of a company's internal information and treat the information with the utmost confidentiality and care. Information related to our clients is never released to outside parties without prior authorization.
- What are some of the most common methods to value a business?
The most common methods applied to value a business include:
1. Asset-based approaches: Basically these business valuation methods total up all the investments in the business. Asset-based business valuations can be done on a going concern or liquidation basis.
A going concern asset-based approach lists the business net balance sheet value of its assets and subtracts the value of its liabilities.
A liquidation asset-based approach determines the net cash that would be received if all assets were sold and liabilities paid off.
2. Income-based approaches: These valuation methods are based on the idea that a company's true value lies in its ability to produce cash flow in the future.
One common income approach is Capitalizing Past Earning. With this approach, an analyst determines an expected level of cash flow for the company using a company's record of past earnings, normalizes them for unusual revenue or expenses, and multiplies the expected normalized cash flows by a capitalization factor. The capitalization factor is a reflection of what rate of return a buyer would expect on the investment, as well as a measure of the risk that the expected earnings will not be achieved.
Discounted Cash Flow is another earning value approach to business valuation that involves forecasting the future returns (e.g., net cash flow, income, etc.) and discounting each period back to a present value at a discount rate, which represents the time value of money plus risk involved.
3. Market-based approaches: Market value approaches to business valuation attempt to establish the value of a business by comparing the business to similar businesses that have recently sold. This method will be reliable only if there are a sufficient number of similar businesses available for comparison.
The Guideline Publicly Company Method relates market value multiples for public company stocks to fundamental financial variables for the subject company (e.g., P/E, EBIT multiples, etc.).
The Direct Market Data Method relates to determining market multiples by reviewing financial data regarding actual transactions involving either minority or controlling interests in either publicly traded or closely held companies. The business appraiser must use reasoned, informed judgment in selecting an appropriate valuation multiple (P/S or P/E) to be applied to the subject company.
- What will the valuation report look like and what information will it contain?
The business valuation report is presented as a professionally bound book. Our reports include an explanation of the purpose of the valuation; a statement of value; an explanation of the business risk factors specific to the company and industry; a description of the company and its industry positioning; a review and assessment of the prevailing economic conditions and trends in the industry; detailed financial statements covering historical and projected periods; a review of multiple valuation methodologies and justification for those selected, given the specifics of the company and the purpose of the valuation; and the estimation of value based upon the various valuation indications of the methodologies utilized.
- Within what time frame can I expect my report?
Valuations are required or sought for a specific purpose, wherein timely results are typically an important factor. HBKVG has the resources to provide a completed comprehensive valuation within 15-20 business days of receipt of the required information. It will take about 10 business days to complete a calculation report.
- What are the fees associated with your valuation services?
The cost of valuation services is determined on a case-by-case basis, depending on the scope of the engagement. This can be assessed during our initial telephone conference or consultation meeting.
- Once I obtain a business valuation report, how long is it good for?
Typically, a valuation report is valid for a maximum of one year, after which it must be updated to reflect subsequent company performance and current economic/industry conditions. There may, however, be some extreme dominant factors such as a natural disaster or the events of 9/11/01, which could invalidate a valuation report prepared prior to the occurrence of the extreme event.
- Can you value companies in my location?
We can value companies in all 50 states.
- What size clients does HBKVG serve?
Our clients have ranged from sole proprietorships, small companies with around $250,000 in revenues, to middle market companies with revenues in the $2 million - $100 million range. We can, however, value companies of virtually any size, in any industry.
- Does HBKVG provide expert witness services?
In the past, HBKVG has provided expert witness service for its clients and we are always available to defend our valuation conclusions and provide expert witness services in connection with our future valuation engagements.
- Does HBKVG value intangible assets?
Yes, as part of our practice, we provide valuations of intangible assets. These intangible assets include goodwill, patents, trademarks, copyrights and other intangible assets.