Business Valuation

Business Valuations

WHY OUR VALUATION SERVICE

SpotOn Financial has slowly built a practice bringing together industry leaders to offer customized, certified, affordable business valuations tailored to the specific needs and circumstances of our clients. We provide no cost consultations to confirm a detailed understanding of your situation that enables us to provide immediate feedback regarding timing, approach and pricing.

We apply the most up-to-date valuation methodologies using industry endorsed software to generate reports that will be clearly explained and supportable in the event of a challenge. Our opinions and reports meet or exceed all relevant professional standards and are subject to rigorous internal review with licensed experts.

BUYING OR SELLING A BUSINESS

When one is considering selling a business, a business valuation enables you to better understand the realistic value of your company and confirm in advance whether selling the company would enable you to achieve your financial goals. A business valuation provides a business owner with an accurate tool that allows the owner to make an informed decision about the viability and timing of the sale of their business. An additional benefit of a professional business valuation is that even if you determine that it is not the right time to sell your business, it will provide you with a road map of what you need to do to increase the value of your business for a future sale.

In conducting a valuation, SpotOn Financial identifies the key value drivers that increase value as well as the operational risk factors that detract from value.

INSURANCE FOR A BUSINESS

For most companies, insurance is just another bill that comes in and gets paid month after month. We know we have to have it, we know why we have to have it, but unless we are paying that monthly bill or involved in a claim, insurance is far from our minds. Do you know if you're properly covered in case of an accident, litigation, or loss? An Insurance Appraisal can be a valuable aid to a company when deciding how much insurance to carry or determining if you are carrying too much insurance and overpaying premiums. SpotOn Financial and our licensed team of professionals can help you understand your risk mitigation. More importantly SpotOn Financial has a network that can help you build on your valuation and potential coverage resources critical to your business success.

FINANCING FOR A BUSINESS

When a business owner seeks financing many turn to a local bank and those banks turn to the Small Business Administration (SBA). An SBA loan is designed to help small businesses obtain financing with favorable terms. In many cases, an independent business valuation by a qualified source is required for an SBA loan.

According to the SBA’s Standard Operating Procedures, an independent business valuation is required if:

The amount being financed (including any 7(a), 504, seller or other financing) minus the appraised value of real estate and/or equipment is greater than $250,000.
There is a close relationship between the buyer and seller (for example, transactions between family members or business partners).
The lender’s internal policies and procedures require an independent business valuation from a qualified source.

When a business valuation is required by the SBA, the business valuation must be prepared by a “qualified source.” A qualified source is an individual who regularly receives compensation for business valuations and is accredited by one of the following recognized organizations:

Accredited Senior Appraiser (ASA) accredited through the American Society of Appraisers;
Certified Business Appraiser (CBA) accredited through the Institute of Business Appraisers;
Accredited in Business Valuation (ABV) accredited through the American Institute of Certified Public Accountants;
Certified Valuation Analyst (CVA) accredited through the National Association of Certified Valuation Analysts;
Business Certified Appraiser (BCA) accredited through the International Society of Business Appraisers.

When a business valuation is required for SBA lending purposes, there are additional requirements contained in the SBA’s standard operating produces, including:

The business valuation must be requested by and prepared for the lender. The lender may not use a business valuation prepared for the applicant or the seller.
The scope of work should identify whether the transaction is an asset purchase or stock purchase and be specific enough for the valuation analyst to know what’s included in the sale (including any assumed debt).
The business valuation must include the valuation analyst’s opinion of value, qualifications and signature certifying to the information contained in the appraisal.
The business valuation must be conducted in compliance with the current Uniform Standards of Professional Appraisal Practice (USPAP) guidelines. USPAP is the generally recognized ethical and performance standards for the appraisal profession in the Unites States.

SBA loans are a great way for small businesses to obtain financing. It is important that all the parties involved understand when an independent business valuation is required, who is qualified to prepare them and the specific guidelines valuation analysts must follow when preparing them. SpotOn Financial provides industry endorsed valuations and our network includes licensed and certified experts to help you obtain your funding.

BUSINESS DISPUTES

Most dissolution disputes center on the valuation of the business. One of the first steps in the process is for the owners to determine how much the business is worth so that they can arrive at an equitable resolution, such as buying out the other’s interest or selling the business to a third party.

However, valuing an owner’s interest in the business is difficult because it requires a unique type of expertise in valuation theory and methods, along with the application of generally accepted valuation principles. Most business owner disputes are classified and valuations are prepared according to value standards identified prior to the appraisal. Business owner disputes can generally be classified as:

Dissenting shareholder actions
Minority oppression actions
Disassociation actions
Statutory mergers and appraisal rights valuations
Other matters guided by documents and contracts
Bankruptcy
Partner/shareholder disputes
Loss of business value disputes
Post-merger and acquisition disputes
Marital dissolutions

Some common triggering events for owner disputes are:

Deceptive practices
Diversion of corporate opportunity
Diversion of income
Involuntary dissolution of a business
Non-payment of distributions
Breach of contract

Business owner disputes often occur during a time of great stress. And depending on the issues involved, different value standards and discounts may or may not be applicable. This is why it is paramount to use an experienced and skilled valuation expert to safeguard your interests in a business that is being dissolved. SpotOn Financial has a network of those experts ready to assist you in good times and bad. When you are preparing your business for its next step it is key you do so with a proven team and experts along the way.

TAX VALUE OF BUSINESS

There are a number of situations where you need a business valuation for tax purposes. These include:

changes in capital structure
changes of ownership
capital gains tax rollovers
company divestments
company acquisitions

There are several approaches you can take to valuing a business, or intangible asset.

These are usually categorized as:

The most suitable approach depends on the context and purpose of the valuation and the particular characteristics of the item being valued.

The approaches described above are only the first step in deriving the value of an item.

When determining the market value of a business for tax purposes, additional factors need to be considered according to the asset being valued.

Valuation methods

The valuation of a business for tax purposes is usually based on a number of established valuation methods built around the market-based, income-based and asset-based approaches.

In valuing a business, there are a number of factors that may affect the market value and produce a reasonable and defensible view of the market value. It is important that a business valuation is transparent and any factors affecting the outcome have to be understood.

These factors may include:

valuation methods –choices need to be explained and demonstrated as to why they are appropriate
valuation metrics –for instance, a description of how a company weighted average cost of capital was derived.
valuation date
purpose of the valuation
basis or premise of your valuation – for example, valuation of the business on a going-concern basis
description of the business

Valuing intangible assets and intellectual property

The valuation of intangible assets, including intellectual property but excluding goodwill, is based on a number of established valuation methods using market-based, income-based, cost-based and probabilistic approaches.

These methods include:

comparable transactions
incremental income
excess earnings
relief from royalty
replacement or reproduction cost
simulation analysis.

It is very important to apply these methods in the context of the valuation itself.

One thing is paramount in a business valuation, and that is that the valuer has the experience and knowledge to provide a valuation that is accepted for taxation, merger and acquisition or litigation purposes. SpotOn Financial has a network of qualified attorneys, CPA's, Business Appraisers, and access to industry endorsed software to enable our team to support your business and valuation goals. Our extensive network and tools can give you the confidence you need to move forward with us.

OUR PROCESS FOR BUSINESS VALUATIONS

As a business valuation client for SpotOn Financial you will receive a well-defined valuation process that considers a variety of income, market and asset approaches to identify the methodologies that best suit your company and valuation purpose. Our independent, objective, and supportable value opinions adhere to the National Association of Certified Valuation Analysts (NACVA) standards.

Our First Step In Our Process

We meet with you to ensure there is a complete understanding of the objectives and purpose of the business valuation engagement.
Proposal Presentation

Upon gaining a complete understanding of your objectives, we will provide an oral fee quote and written valuation engagement summary. It will define the scope of our service offering, expected timeline and fee for services. SpotOn Financial can provide financing for the purpose of engagement and hiring of qualified third parties to include attorney fees, accountant fees, insurance coverage analysis, and business appraisal fees.
Data Gathering

We compile information about your company through detailed questionnaires; shareholder interviews; and financial document review. Our ability to fully understand all financial and operational aspects of a client’s company enables us to better achieve the valuation objective and support our business valuation conclusions. This requires a full understanding of the financial statements and any required recasting adjustments to account for owner benefits; perquisites; one-time and non-recurring expenses; intangible assets; and the operational and industry risk factors that can substantiate higher or lower valuation conclusions. When applicable we work together with our client to generate projections of the anticipated future financial performance.
Research and Analysis

This involves analysis of company documents, financial statements or tax returns, operational information, intangibles, risk factors and other data. Sun researches the economic factors, industry trends and influences, potential risk factors and completed public and private comparable industry transactions. Financial statements are prepared for tax purposes and must be properly interpreted and recast in order to utilize for business valuation purposes.
Valuation Preparation

Our reports include a comprehensive presentation of the specific business risk factors; a detailed description of the company and its market positioning; and a review and assessment of the prevailing economic conditions and trends in the specific industry. Detailed recast financial statements are included in the report. We consider, perform and review an array of valuation methodologies to determine which best apply. All assumptions and results are tested for validity. Our goal is to provide a customized, comprehensive and defensible business valuation.
Management Review

A final draft of the report is reviewed with the client and any other professionals involved. The valuation is thoroughly explained to our clients and the associated advisors to ensure a thorough understanding of its conclusions confirm accuracy and enable the report to be fully utilized for the intended purpose. If appropriate, we will make required revisions to the draft and then issue the final report

BROKER PRO-TIP

SpotOn Financial uses industry regulated software to support a business valuation report and our network of business attorneys and certified public accountants review those reports to provide expert opinion and analysis to our clients. This makes sure we have most accurate value using industry accepted practices. We suggest a business owner has a yearly business valuation to make sure the business has the correct insurance coverage, has the best debt analysis, and presents it's strongest value to lenders, creditors, and potential buyers.

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