The Business Valuation Process
Business owners who decide to sell their business without first getting an independent business valuation are undermining their own shareholder wealth. Research has shown that business owners who execute an independent business valuation before selling their business get a higher purchase price than business owners who do not get a business valuation before selling. The valuation gives a clear starting point for negotiations between buyer and seller!
For a R50 million transaction, why would you accept potentially R10 million less for your business?
How The Business Valuation Process Works ...
Here is what to expect when we do a business valuation for you ...
- You make contact with us (BVA) on 0861 99 99 32 or email us on firstname.lastname@example.org
- You email us the requested financials and business data
- We will liaise with you to resolve any questions that arise regarding financials, adjustments, operations, projections, etc.
- You will receive your Business Valuation Report
- A senior valuation advisor will discuss and explain the Business Valuation Report and results with you.
You will then collectively determine the most appropriate actions to take following the business valuation process. Perhaps you will grow the business strategically to ensure maximisation of shareholder wealth by focusing on the key valuation drivers of the business, sell your business, buy the business or maintain status quo and monitor the key valuation drivers of the business annually after the Audited Financial Statements are available from the Auditors.
Our Role As The Business Valuator
With over twenty-one years experience in the financial sector, BVA has been involved in Mergers & Acquisitions on both the buy and sell sides and have been advisors on various successful business transactions.
BVA has experience in many different industries and our teams exposure to investments, investment banking and consulting in Corporate Finance provides our staff with a strong understanding of the needs and demands of the business owner.
Our mission is to continue delivering both an efficient and quality professional service to our clients.
Our number one priority is to attain the best result with each and every business transaction for every BVA client.
A valuation expert evaluates and considers the following factors when conducting a valuation:
- The historic and current financial results of the company
- The prospects of the company and it's future potential
- The capital strength of the company
- The marketability of the shares and restrictions on the transfer of the shares
- Milestones successfully achieved by the company
- The shape of the economy and of the particular industry
- A robust, competent and experienced management team and board of directors
- Competitive position in the market
- Strategic and successful supplier relationships
- Strategic and successful customer relationships
- Major investors and key stakeholders in the enterprise
- Operational performance, enterprise cost structures and financial ratios
- Assess the Industry Attractiveness or Industry Strength
- Existence of proprietary technology, product, service or brands
- Assembled work force and the work force's skills
- Customer and vendor characteristics
Business Valuation Methods
We offer valuations to Clients who are interested in determining the fair value of a business.
While there are a number of valuation formulas and methodologies used globally in the business valuation industry, they can typically be grouped into 3 approaches:
- The Income Approach,
- The Market Approach, or
- The Asset Approach.
Based upon the valuator's judgment a combination of the approaches maybe applied.
The Reality checks used to validate the results of the valuation are:-
- What is the payback period for a potential investor or business owner
- What is the expected price book ratio of the business
- How does the value compare to book value
- How does the resulting Price Earnings Ratio compare to other similar entities
- How does the resulting dividend yield compare to other similar entities
Once the valuation is complete the valuer will issue a detailed valuation report.
What is the description of business value
The value of an asset is the present value of the expected future economic benefits a holder of that asset should derive from ownership thereof.
As the future is unknown, such a valuation must necessarily be based on views about future transactions, circumstances and events.
When projecting the future economic benefits, an analysis of past performance is undertaken and views from management of future performance are obtained. These views then form part of a valuation model that crystallises the present value of the future economic benefits discounted at a risk adjusted rate. The actual future economic benefits could be higher or lower than those projected. The value arrived at is the best estimate of the discounted future economic benefits.
The Monte Carlo model provides a weighted average probable value of the estimated future economic benefits taking variations of key valuation drivers into account.
Recommended Financial Terms and Price Justification
As an add on to the business valuation process, we can do an analysis on the most relevant financial structure for a fair buy-sell arrangement between the subject company and a prospective buyer. This empowers the existing business owner(s) in price and term negotiations to ensure they are financially protected, both short and long-term.
In addition to recommended financial structures, BVA includes a reality check on the selling price so that the sellers can confidently stand their ground with the buyers.
- Recommended Financial Terms
Once the business value has been determined by our team of expert business valuers, we will present recommendations to the business owner on the best way to structure the sale of their business. The structure and financial terms of a business transfer will influence the actual purchase price agreed to by a seller and buyer.
- The Selling Price Justification
Prudent business buyers will conduct due diligence, with the assistance of a Chartered Accountant or with the aid of other professionals. As part of the valuation package, a justification of selling price reality check is conducted and presented to support the value of the subject business. This test evaluates the pricing and determines if a buyer will consider buying the company at that price.
Price is what you pay. Value is what you get.