Business Valuations

While obtaining a valuation for a contemplated sale or purchase is most common, there are several other reasons, including but not limited to shareholder buy-outs/buy-ins, financing/underwriting requirements, gift and estate tax compliance, deferred compensation arrangements, and expert litigation support (family law, lost profits, and economic damages). Additionally, depending on the nature of the exercise, a generic fair market valuation may not be appropriate or applicable; other standards of value include investment value, intrinsic value, market value, and fair market values specifically designated for FASB/GAAP or dissenting shareholder/minority stockholder oppression cases.

If your company is profitable and your equipment is necessary for operations, that equipment will typically affect value to the degree that it’s expected to produce future cash flows. Remember that cash flows take into account future equipment expenditures. So, if your equipment is old and will need to be replaced soon, your expected future cash flows are reduced by the anticipated cost (discounted to present value) of any new equipment you’ll need to purchase. If your company isn’t profitable, or if a buyer won’t need the equipment and you want to sell it separately, it may be necessary to have an equipment appraisal performed to determine its value. We can refer you to a qualified equipment appraiser.

Yes, a business can still be valuable (and more than one may expect). For example, investors often look at the long-term potential of a business. If a company has a strong business model, innovative products, or a large market opportunity, it can be considered valuable despite historical losses. Additionally, the value of a business isn’t just in its current profitability. It can also include tangible assets like real estate, equipment, and inventory, as well as intangible assets like patents, trademarks, and brand reputation. Lastly, a business might be valuable to another company because of potential synergies. For example, merging with or acquiring a business can lead to cost savings, increased market share, or enhanced product offerings. Through accretive/dilutive analysis and alternative deal structuring (e.g. royalties), we help clients find value in even the toughest of circumstances.

The frequency of obtaining an updated valuation depends on its nature and purpose. For example, valuations are commonly updated annually for purposes of monitoring business performance, strategic planning, and equity-based compensation arrangements. Other valuations are performed on an event-driven basis, such as contemplated sales/divestitures, capital raises, internal changes/restructuring, legal disputes and divorce proceedings.