We have assembled various videos here to address some of your frequently asked questions or FAQs. You can also check out our YouTube channel for a full library of company valuation expert videos.
What happens after you hire a valuation expert? What documents do I need to prepare?
Small business owners always have questions about the valuation process. What happens after I hire a company valuation expert?
First the expert is going to give you a list of company information which you need to compile in hard copy or electronic format - this is sometimes called a "Document Request". Documents such as historical financials, income and expense projections, operating agreements, buy-sell agreements, prior sales transactions within the company, lease agreements are all examples of what the expert will need for the valuation engagment.
One of the first steps for the expert is to review three to five years of historical financial data. This will be income statement and balance sheets, either audited, reviewed or compliled by an accounting firm or CPA, or if you don't have an accountant then you can supply the expert with tax returns for the company.
The business valuation expert will also want to review your projections for income and expenses. The valuation company expert will meet with you for a couple hours and discuss all facets of your business including operations, staffing, management, locations, industry and economic issues pertaining to your company.
The expert will develop a report or calculations depending on your specific situation. It will take time to gather all the pertinent documents for the valuation, so the faster you can get the documents to the expert, the faster they can get going on the work.
If you own a business in St. Louis and would like to learn more about business valuations, give us a call.
How does the expert value a business? What methods do you use to value businesses?
Clients always have questions about how to value a business and methods of valuing a company.
There are a few different methods used by experts when completing a valuation of a company.
- Income Approach
- Cost Approach
- Market Approach
There are guidelines for each method and comprehensive business valuation analyses for each particular approach. In general, a professional valuation expert has to consider these three approaches. And by professional, I mean an expert with credentials or certifications who are members of organizations which have standards -- and the professional has to comply with these standards.
Many times other finance and accounting professionals such as CPAs, business brokers or financial advisors may be able to give you an idea of the value of a company, but they are not necessarily obligated to use any specific business valuation methods.
Typically a company would need a formal valuation if there was some type of litigation involved or if the valuation is going to be attached to a tax return and submitted to the IRS. In these cases the valuation expert needs to understand and conform to the standards.
Valuation in a Divorce
What happens when you own a company and you file divorce papers? What are the three levels of valuation in divorce?
Many attorneys and business owners want to know about valuation issues regarding divorce in Missouri?
What happens when you own a company and you file divorce papers? Well the first step is to contact a family law attorney who you trust to handle your case. Then you need to start gathering data, including prior tax returns for at least the past five years, financial statements, bank records, buy-sell agreements and operating agreements just to name a few.
You will then start discussing the value of the company with your spouse, preferably through your attorney. If you find out that your view of the value is different than your spouse's view of the value -- then you may need a business valuation expert.
I typically see valuations for divorce have three different levels -- the first is calculation phase. This is where the expert reviews all info and determines the value of the business -- which is not a full valuation per se. Just calculations and some financial spreadsheets.
Then the second level is the report phase. if a settlement cannot be reached and the parties get closer to trial, the experts will then produce reports regarding the calculations. This is to outline the valuation methods used by the expert. These reports are ususally submitted to the court and to both attorneys at the same time -- and prior to the court date.
The final phase is expert testimony. After the reports are issued, the attorneys may want to questions the experts in deposition. This is treated like testimony in divorce court. This happens relatively close to the trial date. And then the experts will testify in trial.
One thing to keep in mind -- the experts are truly servants of the court and judge and therefore you should work to find an expert that tells you the truth rather than what you want to hear. If your divorce goes to trial you will want an expert who can support their numbers with data and not just opinions.
Experience and Credentials
Does the expert need experience in a specific industry in order to provide valuation services?
Small business owners always have questions about company valuation issues: one of the main questions is "Do I need a valuation expert with experience valuing companies in my industry?"
Well the answer is yes and no. For the most part a person who specializes in valuing businesses and who has a valuation credential such as a CVA, ABV, ASA or even a CFA, knows how to value most types of companies. Many of the same valuation methods apply to a manufacturing companies, professional services firms or product distributors.
The valuation expert looks at three approaches. Asset approach, income approach and market approach. In short the analyst will look at the assets, liabilities and equity of the firm for the asset approach. The income and expenses in an income approach or other market transactions in your industry for the market approach. Market transactions are essentially other companies who have been bought or sold in recent years. So no matter what you do, or service you provide the valuation methods are similar. So someone who is accredited in valuation theory will understand how to value most companies.
So it is good to question an expert about their experiences -- but also question them about their valuation credentials. This factor may be of more importance.