Business Valuation Services: Why You Need to Know Your Value?

Clint Weeder

Business tax planning, investment advisory services, business valuations

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The COVID-19 pandemic, uncertain market conditions, and potential tax law changes continue to impact small business owners and their families nationwide, and our community is no different. It has left many owners unsure of what the future may hold for their business and what planning they should consider to keep their business viable for years to come.

Business valuation services will help you get your footing as we slowly but surely put the pandemic behind us and as we learn more about the potential tax law changes. A business valuation gives you the state and health of your business and can assist you with many planning tools as you continue to grow your business and as you start to plan for your exit. 

Most importantly, it can provide an essential component of your legacy planning for you and your family.  

Warren Buffet quotes that “valuing a business is part art and part science.” Here at McMill CPAs & Advisors, we’re proud to combine art and science to offer complete business valuation services to business owners in Norfolk and throughout Northeast Nebraska. 

What Are Business Valuation Services?

A business valuation is a process of evaluating the economic value of a company. Business valuation services come into play to find the true value of a business due to several reasons.

Determining The Sale Value

A business valuation protects you from short-changing yourself during a company sale. It ensures that the asking price is ideal for prospective buyers while you receive the best return on your investment as possible. We’ll help you analyze your business compared to peers, including metrics that set you apart so you can negotiate favorable terms.

Estate Planning

In the uncertain tax world today, it will be as important as ever to understand how your business will be treated as part of your estate, to ensure the legacy you want to leave behind holds intact. A business valuation can provide an estimated value of your business, so you can make the appropriate decisions when planning for the future and potentially avoid a costly estate tax bill. 

Litigation

During court cases such as divorce or injury, where settlements are due, a business valuation is vital. You will need to determine the company’s value to avoid an unfair determination.

Planning an Exit Strategy

If you are looking to sell your company, establishing a base value is important. It helps you understand the financial strengths and weaknesses of your company so you can plan on how to increase the company’s overall value. We can assist in generating a plan forward, including tracking key performance indicators (KPIs) that are essential in your industry.

Business Buying

Buyers and sellers may voice different opinions on the true value of a business. A business valuation indicates the amount a potential buyer should pay for a business. The valuation looks at potential income and market conditions to ensure you don’t get overcharged.

Partnerships

When you want to incorporate with other members, a business valuation helps determine the value of your ownership. A valuation is an essential component of any buy-sell agreement, and it should be one that is easy to understand. This will avoid potential disputes in the future between members. It will provide for the smooth transition of new members into the company and the exit of existing members. It will also protect the families of those members on both sides of the table. 

Strategic Planning

A business valuation helps entrepreneurs come up with a plan to boost their ventures. Present-day valuations will help you determine the business’s state and the decisions you need to make to improve it.

Funding

Before facing investors and banks for funds, you need a business valuation to enhance your credibility. It helps gain investor’s trust when they know how much your company is worth and it will help the bank better understand your financial position. 

How Is a Business Valued?

There are various elements of a business valuation that establish the worth of a business. They include the following:

Net Assets

Valuators use the asset-based approach to gauge the value of a business that is asset-intensive. Under this valuation method, the spotlight is shined on the business’s net asset value. The value is determined by assessing the fair market value of all assets less liabilities.

The Market Value Compared to Peers

The market value approach method entails assigning the business a value comparable to that of similar businesses in the market (relative to size, sales, and industry). The transactions used for comparison can be a previous transaction with the same company, transfer of ownership involving comparable companies, and a market quotation from listed securities by a company in a similar industry. 

An Analysis of Cash Flow

The discounted cash flow method (DCF) method is one of the most effective approaches to a business valuation. It looks at the potential future earnings of the business to establish worth. The approach can either analyze historical cash flows, or forecasted/budgeted cash flows to estimate the future cash flows of the company. The method is widely used for service-oriented businesses, and with businesses where cash flows can be projected with a higher degree of certainty. 

The McMill Way

McMill CPAs & Advisors use the above methods to estimate your company’s business value. A business valuation helps you to assess the current “health” of your business, assess the viability of business deals, and plan for the future. Our professional team will help you understand your business and its value so you can make the best decisions for you and your family. Contact us with any questions you may have regarding our business valuation services and how they can assist you and your business in Norfolk and surrounding communities today!