QUESTIONS AND ANSWERS
What You Should Know
WHAT KIND OF APPRAISALS DO YOU OFFER?
Our practice is focused on the needs of small and middle market companies generating revenue from real estate, construction, manufacturing, distribution and logistics, retail, food and beverage, wineries and farms, SaaS and professional practices. We have extensive experience in estate and gift, California divorce, 409a valuations, start-ups and IP spin-outs. Although we value companies with hundreds of millions of revenue and those with little revenue, most projects are for companies with revenue between $2 million and $75 million.
WHERE ARE YOUR APPRAISALS USED?
Our calculation reports are used for exit planning or mediations where a certified appraisal is overkill. The largest need for business appraisals comes from estate planning and tax assessments, so about 40% of our business is estate tax related. Potential litigation matters are another need - divorce being the most frequent use. We also support requirements for pricing employee stock compensation, 409a option grants and ESOP shares.
HOW MUCH DOES AN APPRAISAL COST?
Pricing is based on the idea of a flat fee base plus extra work that varies between businesses. If your business is very small and we can help you in one 20-minute phone call, your valuation is essentially free. All we ask is that you tell a friend about us. While reports from our competition of equal quality and reputation range from $15,000 to $25,000, our pricing is lower because our overhead structure is low, and we are very time efficient.
A calculation report is $2500. For companies with no extra issues, prices range from about $7,000 to $11,500. Companies having over $1 million EBITDA require one or two extra models and are more. Please inquire about terms and conditions, the appropriate report type and current pricing.
WHAT MAKES SBV APPRAISALS DEFENSIBLE?
Our reports include multiple methods within each approach and uses heuristics to reach a conclusion. We even include methods and data sources that we don't strongly support because others in the profession use them. This allows the report to represent a market that has many ways of approaching valuation. Of course, we weight the methods that we think best the highest, and weight the weakest models the least, before coming to our conclusion. In over twenty years, only one SBV appraisal has been challenged by the IRS, and their challenge was motivated to overturn Circuit Court precedent, not because of a valuation issue. And SBV prevailed.
HOW ARE YOUR REPORTS DIFFERENT FROM OTHERS?
The calculation report is a great value. It is half the cost of competitor reports and comes with a half hour debrief to explain what everything means.
All reports start with M&A data, which represents the right market for the small private company. Accountants and big valuation firms tend to use public company data. We match. They don't.
To get a proper result, 'normalizing' both the Subject company and the M&A transaction data is important. This step is typically missed. Adjusting the 8-25 transactions used in the model takes human intervention, so automated programs miss this step too.
Another key to accuracy, we split the value problem into two pieces like acquirers do. One piece is the starting capital, which includes cash, inventory, accounts receivable and accounts payable. The second piece is the value of future revenues. The two pieces are added together to find the market value of a company. Many valuers just use total assets, which is inaccurate, and others make a working capital adjustment, which is better but imprecise.
The last major point is that market value of a company is different from the value of its shares. This is a complex topic that has to do with the value of the company if sold today versus if it is not sold. We are peer-reviewed experts in the differences.
WHY IS THERE SO MUCH CONFUSION IN THE VALUATION PROFESSION?
Other than a great variation in methods, experience and skill, a political division exists in valuation on whether companies have a single value, or multiple values based upon viewpoint. A major factor that blurs meanings and standards is the accounting profession's establishment of GAAP Fair Value Measurement in 2006. Establishing a new GAAP standard for accountants was a move to produce more repeatable financial statements using a one-price ideology based in statistical analysis. In contrast, the original micro-economic science offers two basic values, one value if a company is sold to a buyer that is used for M&A and a forward-looking value for company investors that takes in the plans of present ownership. This condition of having a value for accounting, a value for selling and a value for investing repeatedly bubbles to the surface for analysts that do not distinguish the differences.