QUESTIONS AND ANSWERS
What You Should Know
WHAT IS MY BUSINESS WORTH?
Business value is tied to its cash flow. While other assets and liabilities may transfer, cash flow is the main feature that a buyer acquires in a sale. How much the cash flow is worth depends upon risk, and risk is determined by sales of similar businesses and features of the business itself. Value is also different for different situations. The value for a sale is different from the value to investors which is different from value for paying taxes. So, the answer to what a business is worth takes time to figure out.
CAN I USE AI TO VALUE MY BUSINESS?
Yes - but the result will be presented with more confidence than it delivers, and the output is not usable for tax engagements or litigation. Whether you want to rely on AI is a question only you can answer. Ask "what's my restaurant worth" and AI will usually ask for revenue and maybe SDE/EBITDA, then apply an industry-average multiple pulled from general training data (often stale, unsourced, or blended across too broad of a category) then hand back a number or range within one or two exchanges. It is not going to normalize owner comp with any rigor, use necessary pay-walled data or notice other complexities that might affect value. Uploading your tax returns into AI will make your business information name, address and tax identification number public too, and that is not likely a good thing. In use of AI, the user also needs to guard against hallucinations. Ask today and you get one answer, ask again tomorrow and the answer is different. If you can hold AI accountable with good questions, then it may give you a reasonable estimate.
DO ALL BUSINESS VALUATIONS GIVE THE SAME ANSWER?
No. 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. In contrast, the original 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.
WHAT IS A BUSINESS VALUATION USED FOR?
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 A BUSINESS 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.
Our services page shows approximate prices. Please inquire about terms and conditions, the appropriate report type and current pricing.
IS A BUSINESS VALUATION WORTH THE COST?
WHAT TYPES OF BUSINESS VALUATIONS DO YOU OFFER?
Our practice is focused on the needs of small and middle market companies generating revenue from construction, manufacturing, distribution and logistics, retail, food and beverage, wineries and real estate, 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.
Usually. A lot depends upon how much money is at stake. A defensible value conclusion can improve the economics of a transaction, support tax or legal reporting, or prevent a costly mistake. A formal, comprehensive valuation may be excessive when the stakes are small and no legal consequence is at hand.
HOW ACCURATE ARE BUSINESS VALUATIONS?
Valuations are not precise, they present an argument for reasonable value. The most defensible claim is a value range of value not a specific point. 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?
Where other valuers rule out methods before they begin, we look at all methods for applicability. This complies with the USPAP professional standard. It is a lot more work and that work is valuable.
The calculation report is a great value. It is a low cost report that comes with a thirty minute debrief to explain what everything means - where you get to ask questions of the expert. Unparalleled value compared to an emailed document alone.
​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 M&A data step is typically missed. Adjusting the 8-25 transactions used in the model takes human intervention, so automated programs miss this step every time.
​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 misses the right value one way or the other. 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.