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Q:
I am thinking about selling my business.
A: Thinking about selling
your business? We can help with that.
Consider the valued added
by a professional business broker. Brokers are the
EXPERTS in the confidential business marketing and
transfer process, just as YOU are the expert in your
industry. Why not let the experts help you:
* Determine the market value, possible strategic value
and appropriate listing price
* Advise you as to terms and deal structures to help you
keep more profit on the sale
* Execute the marketing and advertising plan designed
for your particular business
* Avoid the disruptive impact of your plans becoming
common knowledge
* Find, Screen and Qualify prospective buyers
* Work with professional advisors on your team
* Assist the buyer in obtaining financing
* Negotiate profitable sale terms and deal structure
* Assist with all the complex details of a business
closing?
Ask An Expert Section:
On Appraisals:
1.
Q--What is a formal
business appraisal?
A--Every
year, billions of dollars worth of decisions are made on
the "values" of businesses or business interests as
determined by the owners, buyers, financial
intermediaries, regulatory agencies such as the IRS, and
the courts. Up until the 1980's, business appraisal was
in most respects a neglected discipline until the
establishment of The Appraisal Foundation (founded
1986), a non-for-profit organization authorized by the
US Congress to establish formal appraisal ethical
standards and standards of practice, or the Universal
Standards of Professional Appraisal Practice (USPAP) for
all appraisal disciplines (i.e., real estate and
personal property, as well as, for business). This was
followed, or in some cases, preceded by the
establishment of professional associations devoted
specifically for the business appraisal discipline such
as The Institute of Business Appraisers (IBA-established
1978), the American Society of Appraisers (ASA-established
separate business valuation discipline in 1981) and
others including the National Association of Certified
Valuation Analysts (NACVA-1991), and the AICPA in more
recent years.
2.
Q--When is a formal
business appraisal needed?
A--Typically,
a formal business appraisal is needed when there is a
statutory requirement for a "qualified" appraisal by an
independent third party, as in the case of an IRS action
for estate and gift tax purposes. Qualified typically
means the appraiser has met specific educational and
Professional accreditation requirements as established
by one or more of the above Professional associations.
Other such statutory requirements include when a
business establishes an Employee Stock Ownership Plan
(ESOP) as per the Federal Employment Retirement and
Income Security Act (ERISA) and the Department of Labor
regulations. Additionally, certain litigation actions
under State law such as dissident shareholder suits,
divorce, eminent domain and other legal procedures will
typically require a business appraisal by an
independent, qualified appraiser. Other non-statutory
requirements for a business appraisal may involve the
sale of the business to an outside party, the
acquisition of another business (or part thereof),
financing, or to meet other strategic planning needs of
the owner (s).
3.
Q--How can a
Business Broker or other Affiliated professionals work
together?
A--Specifically,
if a Business Broker, or an Affiliate such as an
attorney or a CPA, who has a client who is in need of a
statutory business appraisal in order to meet estate
and/or gift tax needs, or for an ESOP, or for some
litigation purpose such as a divorce or eminent domain,
a qualified, certified business appraiser can assist in
these matters.
Additionally, a business
appraiser can provide support in the case of a business
sale if there is a need for an independent third party
to verify or confirm the transaction. However, it is
emphasized that a business appraiser is NOT intended to
be a replacement for the Business Broker - only to
provide support if needed. Furthermore, the fundamental
value of a business or a business interest is very
different for statutory purposes as the definition or
standard of value is usually specified by some
government regulation, law or by the courts, as opposed
to the case of a business sale at arms-length between
two specific parties as negotiated through a financial
intermediary. Finally, a business appraiser can be of
assistance to lenders who are seeking an opinion of
value from an independent third party qualified business
appraiser to document the value of a business with
regard to lending requirements.
On
Pricing VS Value
Q: Why is the
Asking/Listing Price above what would appear to be a
"fair
market value" using general pricing
methodologies, such as Comps, and
Rules of Thumb?
A: Fair market value is
not indicative of a real world sale price because it is
based upon a theoretical buyer and seller operating with
full knowledge, not under compulsion to make a deal, and
negotiating for their own best self-interest to arrive
at a cash (cash equivalent) price. Sellers know the
true value of the cash flow, which may not be disclosed
on financial statements or tax returns, and almost
always add a "going concern" premium to their price
expectations. Also, if the seller does not receive all
cash, then the actual selling price tends to be higher
to reward the added risk for the seller by holding a
note. Finally, a seller always asks for more than is
expected to provide room for negotiation, since the
seller knows the buyer is unlikely to make a best offer
first.
Q: A seller wants the
business appraised to establish a range of value before
agreeing to the listed price. What standard of value
should the appraiser
be asked to find?
A: If the seller wants to
know what the business is worth to him/her, then the
appraiser must consider any synergistic contributions by
the seller that a theoretical seller might not have and
the "going concern" value of the future income
reasonably expected, so the standard of value would be
"investment" rather than "fair market value". If the
seller wants to know what a potential buyer might pay
for the business on a cash basis and a buyer could be
expected to operate the business in the same manner as
the seller, then "fair market value" might be
appropriate, EXCEPT in today's financing market the
lenders are almost always requiring the seller to
participate in financing and are reluctant to loan money
to people without industry experience, so if the
appraiser must consider a sale price not based upon cash
or cash equivalents at close and possible synergies from
an industry experience buyer, then "investment" value is
more correct.
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