Back in January, I wrote about learning what your business is worth to have a benchmark. GLM has done 5 valuations since then and "Re-Valuations" since then. Most of the businesses have gone up in value since the original one was done.
The value assessment driver of any business is the ability of the entity to generate future cash flow
or earnings. Business appraisers will assign an appropriate capitalization rate (or multiple) to a
selected earnings stream to derive an overall value for a business. The value of the net assets of a business is compared to the cash flow valuation and may be adjusted upward or downward. For example, if the earnings based valuation is less than the net asset value, an upward adjustment may be in order.
Conversely, if the net assets are negligible, a downward adjustment is more likely to occur.
Many appraisers typically use a common range of multiples to arrive at a “ballpark” indication of value (for
example, 4 to 6 times EBITDA). While this approach is commonplace it is not an accurate valuation and an in-depth valuation of the company will show the true position. There are too many intangible factors to
consider relying solely on the capitalization of earnings. Of course, the ultimate value of a company
will be determined by the marketplace. This will generally differ from a seller’s expectation, as well
as the expectations of potential acquirers.
It is not uncommon for business owners to have an inflated sense of value of their company. This is due to a variety of factors including emotional attachment to the business, unwillingness to accept the impact of the risk factors facing the business, outside influence from previous market conditions, incorrect conclusion of normalized earnings, comparable transactions, etc. Conversely, acquirers often undervalue businesses. In their quest to “buy right” they often, end up paying a lower multiple for a company with serious negative factors, while passing up on higher multiple opportunities, which, due to the quality, are actually the best buys. A business valuation is a complex process. Owners and buyers will be in a better position if they rely on professional advisors such as their accountants, business appraisers, intermediaries or investment bankers.
Know as you go
While valuing a company is not an exact science, it is also not a total mystery. Valuation is an art practiced by experienced financial professionals. Given the complexities of analyzing all the direct and indirect factors influencing a company’s value, it is often a good wise investment to have a third party valuation or appraisal by an accredited valuation analyst. Having this information prior to going to market drastically enhances your chances of selling at the best possible time and price.
The value assessment driver of any business is the ability of the entity to generate future cash flow
or earnings. Business appraisers will assign an appropriate capitalization rate (or multiple) to a
selected earnings stream to derive an overall value for a business. The value of the net assets of a business is compared to the cash flow valuation and may be adjusted upward or downward. For example, if the earnings based valuation is less than the net asset value, an upward adjustment may be in order.
Conversely, if the net assets are negligible, a downward adjustment is more likely to occur.
Many appraisers typically use a common range of multiples to arrive at a “ballpark” indication of value (for
example, 4 to 6 times EBITDA). While this approach is commonplace it is not an accurate valuation and an in-depth valuation of the company will show the true position. There are too many intangible factors to
consider relying solely on the capitalization of earnings. Of course, the ultimate value of a company
will be determined by the marketplace. This will generally differ from a seller’s expectation, as well
as the expectations of potential acquirers.
It is not uncommon for business owners to have an inflated sense of value of their company. This is due to a variety of factors including emotional attachment to the business, unwillingness to accept the impact of the risk factors facing the business, outside influence from previous market conditions, incorrect conclusion of normalized earnings, comparable transactions, etc. Conversely, acquirers often undervalue businesses. In their quest to “buy right” they often, end up paying a lower multiple for a company with serious negative factors, while passing up on higher multiple opportunities, which, due to the quality, are actually the best buys. A business valuation is a complex process. Owners and buyers will be in a better position if they rely on professional advisors such as their accountants, business appraisers, intermediaries or investment bankers.
Know as you go
While valuing a company is not an exact science, it is also not a total mystery. Valuation is an art practiced by experienced financial professionals. Given the complexities of analyzing all the direct and indirect factors influencing a company’s value, it is often a good wise investment to have a third party valuation or appraisal by an accredited valuation analyst. Having this information prior to going to market drastically enhances your chances of selling at the best possible time and price.
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