The Valuation Process

Do you need a business appraisal? Whether you're gifting company shares, settling a divorce, or buying/selling a business, evaluating a business valuation professional is essential. However, it may not be easy to do as this may be your first time needing to hire a business appraiser.

No matter what triggers your need for an appraisal, it is crucial to understand the professional's process in developing the valuation.

Why Does Process Matter?

Process matters because the valuation must be thorough and complete. A well-documented opinion of business value is defensible and will withstand rigorous scrutiny.

Certified Appraisals must follow a proven process of logical steps that make a business' valuation defensible. Our reports document what was done, why it was done, how it was done, the conclusions drawn, and why those conclusions are reasonable and credible.

Our valuation reports are developed to conform to the highest and most inclusive of all the applicable standards. Our complete and thorough process is summarized in the below six steps:

1. A careful and thorough qualitative and quantitative analysis of the business, including the history, products, markets, customers, management and employees, facilities, capital structure, and competitors. This step includes a site visit, which may be virtual, to tour the operation and interview management.

2. Review important documents, including shareholder agreements and by-laws, key customer contracts, and leases.

3. Complete detailed financial analysis of the past 5-7 years of income statements and balance sheets, as well as common-size and industry peer group analysis to identify trends and anomalies.

4. Construct a forecast of expected future operations.

5. Apply the three generally accepted business valuation approaches:

   1. Income Approach – Earnings relative to public market returns.

   2. Market Approach – Research transactions of similar businesses and develop price-to-revenue and earnings multiples, which are applied to this business.

   3. Asset Approach – Analyze the underlying assets and consider value in liquidation.

   4. Reconcile the indications of value from the three approaches into a conclusion.

6. Document all the relevant research, information collected, analysis, observations, and conclusions in a detailed written Appraisal Report, compliant with USPAP. The company valuation reports are typically 70 – 100 pages or more, depending on the specific facts and circumstances of the case, with all the information needed to understand and agree with the conclusion of value.