LUTZ BUSINESS INSIGHTS
finding the true value of your business
bill kenedy, LUTZ consulting and m&A shareholder
In a recent survey of business owners, 56% of those surveyed thought they knew what their business was worth, yet only 18% had a valuation analysis prepared. We have found that often, business owners have a perceived value of their business based simply off conversations they’ve had with a peer or confidant.
Oftentimes, this method of valuation will not give you the accurate numbers you need. Since every business is different, there is a lot more than just numbers that help in determining a business’s true value. In this blog, we will explain the process some business owners go through when valuing their business vs. how a proper business valuation should be completed.
How Some Business Owners Value Their Business
Usually, the business owner has heard that a similar business sold for a multiple of “X.” They then apply that multiple to what they think their own “X” is and BINGO! – They know the value of their company. Unfortunately, it is rarely that simple.
Each business has its own value drivers, and the ‘X’ the owner thinks they should be applying the multiple to is usually not correct. We’ve asked business owners what they think their business is worth and heard answers that are 100%+ too high. We’ve also had a few instances where the business owner was undervaluing the business. Can you imagine selling your business for less than what it’s worth?!
A little education and the assistance of a valuation expert can help you avoid under or over-valuing your business, which in the end, will help you sell your business at the best price possible.
How a Proper Business Valuation Should Work
We recommend that business owners hire a valuation expert to assist them in determining a reasonable range of value for their business based on the characteristics inherent in their company. Hiring a valuation expert will give you the most accurate data on the true value of your business. These experts will not only take a deep dive into your financial data, but also market trends, company specific strengths and weaknesses, and buyer interest.
We are not saying “hire a valuation person to prepare a 100-page, expensive report.” The valuation analysis required for this purpose does not need to result in a written report and is not a significant expense.
The type and scope of the valuation is dependent upon the purpose for the analysis. If you are looking for a value of your business if you were to sell it to a 3rd party, this can be handled with a consulting project or calculation of value as opposed to a formal valuation opinion report.
Getting the best value for your business is a top priority for all business owners who are selling their company. Make sure you are getting the best value by enlisting the help of a valuation expert. If you would like to learn more about our M&A services and how we can help you, please contact us.
ABOUT THE AUTHOR
BILL KENEDY + LUTZ CONSULTING AND M&A SHAREHOLDER
Bill Kenedy is a Lutz Consulting and M&A Shareholder at Lutz. He specializes in business valuation, litigation support, and merger and acquisition advisory services.
AREAS OF FOCUS
AFFILIATIONS AND CREDENTIALS
- American Institute of Certified Public Accountants, Member
- Nebraska Society of Certified Public Accountants, Member
- Certified Public Accountant
- Accredited in Business Valuation
- Certified in Financial Forensic
- Certified Exit Planning Advisor
- BSBA in Accounting, St. John’s University, Collegeville, MN
- Construction Financial Management Association, Past Treasurer, Board Member
- A Time to Heal (non-profit focused on cancer patients), Past Board Member
- The Advantages and Drawbacks of SPACs
- EBITDA Valuation Multiples and How It's Calculated
- Net Working Capital Calculation Dilemma + Customer Deposits/Deferred Revenue
- 2021 - Is This the Year to Sell Your Business?
- Am I Ready to Sell My Business?
- Lutz M&A Advises Wings on its Acquisition by Eagle's Landing
- Selling Your Business? The Financial Information Buyers Want to See
- Can My Business Run Without Me?
- Finding the True Value of Your Business
- How Does the Business Sale Process Work?
- Understanding the Tax Implications of a Business Sale
- The M&A Client Experience
- Lutz M&A Advises Midwest Scaffold Service on its Sale to Sunbelt Rentals
- 5 Key Purchase Agreement Considerations
- Net Working Capital: What is it and How is it Used?
- Issues During the Due Diligence Process in M&A Transactions
- Lutz M&A Advises Fantasy's, Inc. on its Acquisition by Casey's General Stores
- Primary Benefits of Selling Your Company to an ESOP
- Is An Employee Stock Option Plan Right for Your Business?
- Lutz M&A Advises C&W Transportation on its Sale to Platform Capital
- Our Services, Our People, and Our Results
- Lutz M&A Advises Hands of Heartland on its Recent Investment by Evolve Capital
- Lutz M&A Advises Labor Source on its Recapitalization by Great Range Capital
- Overcoming Obstacles in Business Transition Planning
- Understanding Net Working Capital in Business Transactions
- How to Increase the Value of Your Business
- When is the Right Time to Exit My Business?
- Lutz M&A Advises Triage Staffing on Recapitalization
- Lutz M&A Advises Hockenbergs on Recent Sale to Trimark USA LLC
- Lutz M&A Advises Focus Respiratory on its Recent Buyout by Valley Healthcare Group
- Is Your Small Business at Risk of Fraud?
- Lutz M&A Advises CCW, LLC on its Recent Buyout
- Lutz M&A Advises NIFCO Mechanical Systems on Recent Sale
- Lutz M&A Advises Midwest Door & Hardware on Recent Sale
- Why is Forensic Accounting Needed?
SIGN UP FOR OUR NEWSLETTERS!
We tap into the vast knowledge and experience within our organization to provide you with monthly content on topics and ideas that drive and challenge your company every day.