Why would someone want to value a business enterprise? The reasons are many. Business interests, which include minority interests, controlling interests, total equity value, and enterprise value, frequently need a value affixed for business transfers, sales, owner withdrawals, new owner admissions, gifting, estate reporting, marital dissolutions, divorce planning, business disputes, impairment testing (SFAS 142), and purchase price allocation (SFAS 141). This list is by no means all inclusive, but meant to highlight some of the more common reasons to establish a value.
Business valuation is NOT a mere formula approach whereby accounting numbers are run through an all inclusive computation, and out comes a “value.” The valuation of a business entity involves a very detailed and complex analysis of the business such as its operating environment (regional, industry, and economic factors), the type of entity (C corporation, S corporation, Limited Liability Company-LLC, partnership, sole proprietor, professional corporation, etc.), financial analysis, management, strengths and weaknesses of the subject business, legal agreements binding the business, and purpose of the valuation, to name a few. Considering these factors and others, the valuation expert must determine the appropriate and correct standard of value to use, such as fair market value, fair value, enterprise value, or investment value, and determine how to quantify appropriate risk and return rates along with discounts and/or premiums. This is a complex task, which requires skill and professional knowledge and experience. One does not simply go to a class for several hours and walk out an expert. To even begin to understand and apply the proper analysis, methodology, and to understand the issues of the many types of businesses, requires years of working experience, classroom hours, continuing education specializing in business valuation concepts and updates, and advanced credentials where the analyst has proven his or her knowledge and abilities.
There are three types of business valuation reports MA can provide: Calculation Letter, Summary Report, and Detailed Report. The least complex and least costly report is a Calculation Letter. MA will collect the most recent five years’ tax returns and financial statements and provide the calculations of value for your company. A Summary Report entails reviewing the company’s financial statements, tax returns, industry and the economy and making any necessary adjustments. The most complex and time consuming is the Detailed Report. This report requires an in-depth review of the economy and industry and financial information of the company being valued. The type of report needed to value a company depends upon the purpose of the valuation and the parties involved. Please contact us for more detailed information.
Meridian Advantage’s business valuation professionals do not prepare financial statements, do not perform bookkeeping functions, and do not prepare tax returns. We are specialists and experts in our niche field. Our day-to-day work involves rigorous business and financial analysis resulting in opining on business ownership values. Our business valuation analysts stand ready to testify in court as expert witnesses on business valuation matters as required. Our analysts have credentials including Certified Public Accountant (CPA), Certified in Management Accounting (CMA), Certified Valuation Analyst (CVA), Accredited in Business Valuation (ABV). Our experience covers business valuation situations in a wide variety of business and industries.