The most common question our sell-side clients have when they are considering a sale of their company is “What is my business worth?” Through our valuation process, we will not only tell you our opinion for the most probable selling price for your business, but we will provide the details to back it up.
Business valuations are utilized for a variety of purposes, ranging from wealth planning and partnership disputes to tax compliance and litigation support.
At Keystone Business Advisors, our goal is to provide business owners with fair market value, which is the approximate price they can expect from buyers.
Analyzing the Numbers
Our valuation process starts with reviewing your profit and loss statements, balance sheets, tax returns, and other financial data for the past three years.
With help from you or your CPA or accountant, we recast the financial statements to adjust for any discretionary or nonrecurring expenses or income that should be added back to the bottom line.
A key objective is to determine your company’s cash flow, which is typically characterized as SDE (Seller’s Discretionary Earnings) for smaller businesses or EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) for most businesses.
Next, we typically analyze your balance sheet to determine the net working capital requirements a buyer will need once they take over the business.
Benchmarking Comparable Businesses
Once the review and recast of the financial data is complete, we access business sales comparable data for similar businesses to obtain a benchmark for determining value.
We subscribe to three of the largest third-party platforms to capture our business sales comparable benchmark data to ensure the most reliable results.
The benchmarking data looks beyond comparable sales, as various businesses have their own specific valuation parameters.
Looking Beyond Financial Formulas
When it comes to determining your business’s value, Keystone Business Advisors conducts a special process that includes analyzing a myriad of essential factors including your industry, competitive advantages, diversity of your customers, current industry trends, company assets including value of facility and equipment, capital investment requirements, financial data, and caliber of your staff and management team.
Your company’s growth potential is also a key factor in the equation.
Considering Buyer’s Perspective
When conducting a valuation, it is imperative to consider the perspective of the other party.
Will your business generate enough free cash so that your buyer can recoup its investment in a reasonable period of time? How much free cash will be applied to debt from the sale of the business?
This information must be carefully analyzed to ensure that the buyer will receive the returns necessary for an acquisition to make sense.
If these ratios do not sync up, the valuation must be reevaluated.
Contact Us for an Opinion of Value
The fact that all our M&A advisors are active in representing buyers and sellers in the M&A process puts us in a unique position as we have a firm understanding of the current market conditions. We never just rely on third party data. Applying our market knowledge, Keystone Business Advisors will present you with a likely range of values that you could expect to see.
Please note that in some specific cases, we do assess a fee for opinion of value. This might occur, for example, in the case that a client is conducting long-term planning or already has a buyer lined up to complete a transaction. All information and discussions concerning your valuation are held highly confidential.