Business Valuation

According to the New York Times bestseller The Millionaire Next Door (Stanley & Danko, Pocket Books, 1996), 64% of American millionaires achieved their wealth by owning a business. While this is an exciting statistic, it may be surprising that most business owners do not know what their business is currently worth.

Most business owners consider the business as part of their retirement planning. In fact a large part of the retirement "nest egg" is usually tied up in the value of the business. With so much individual wealth taking the form of privately held business, taking chances on the value is not a wise decision.

Whether you're buying, selling, planning for retirement, planning your estate, taking on a partner, or getting a divorce... a professional, independent business valuation should be considered an essential decision-making tool.

Professional third-party business valuations should be completed by qualified, reputable business valuation companies.

"BUSINESS OWNER BEWARE" Here are a few landmines to be aware of related to having a business valuation completed on your company.

Make sure you use a credible company: Some valuation companies may market their services to you as a stand-alone service. Check their references before paying them in advance for the valuation. There are companies out there that make a living out of charging for valuation services that simply build an impressive-looking document designed to support an unrealistic value to make you happy and take your money. Make sure the company is credible before proceeding.

Use a qualified, experienced company: Not all CPA's or accountants are qualified to complete a thorough business valuation. It takes specialized training, experience, and market presence to complete a credible business valuation. Business lending institutions are a good resource to filter out the qualifications of a potential business valuation company. If well recognized business lenders such as CIT and USBank approve the valuation company, it is a pretty good bet the company is qualified. If not, it is advisable to reconsider.

Be careful of "brother-in-law advice": It seems that almost everyone has heard a "rule of thumb" that is used to value businesses. Unfortunately these "rule of thumbs" taken out of context can be very misleading. Listening to advice from unqualified people should be avoided.

Update the Valuation regularly: If you have had your business valued congratulations. If the valuation is more than three years old, you should consider having it updated. A number of factors tend to change over time such as market conditions, economic conditions, business assets, competitive landscape, revenues, and cost structure. Often the valuation company will extend a discount to simply refresh the valuation with new information. If there have been a number of changes you may need a full valuation.but it will be worth it.

ABMI can facilitate the business valuation process for you. We have established relationships with qualified, reputable, third-party valuation companies that have years of proven track records completing valuations for businesses. The volume of business we are able to generate over time combined with leveraging our financial report review capabilities helps us pass substantial savings through to our clients.