How Do Valuation Experts Look at Your Company?

Providing a business valuation is more than just analyzing financial statements and records. Although the process is complex, the first step is to gather the necessary information. Business owners can make this a lot easier by maintaining good records on an ongoing basis. Although audited statements are certainly preferable, most appraisers and business intermediaries are accustomed to working with the company’s own financial records. Company officials should understand that the people doing the valuation are not charged with verifying the figures but can only work with what is provided to them. Here are some of the areas that are assessed by those doing the valuation:
■The quality of earnings and the sustainability of the earnings come at the top of the list.
■The balance sheet can often show how well management is doing -- for example, by looking at inventory turns and whether there is excess inventory, etc.
■Many figures can be compared to industry data to see how well the company is performing compared to its peers.
■Part of the valuation process is to review the company’s past, present, and especially its future.
■The valuation process, if done correctly with management’s involvement, can show how well the company is performing with like businesses, and specifically how it can improve and add value.
■Professional business appraisers know how to properly recast the financial statement and then apply the proper method to arrive at an appropriate value.
■Business intermediaries, who do valuation work, are especially in tune with market values and conditions.
■Finally, value is not just based on the financial condition of the company. Such factors as those listed below all have a place in the valuation process. •Market share
•Products and or services—are they proprietary?
•Customer concentration and distribution geographically
•Management, their experience, their depth and their ages
•Intellectual property such as brand name, patents, etc.
•Management non-competes, employment agreements
•Dependence on a few customers, seasonality, etc.


A proper valuation, if done on a regular basis, can show any increase/decrease in value. A valuation should also be performed when considering selling.