Mar 2nd, 2013 by Michael Feite, Managing Director
Accountants and licensed CPA firms will be the first people to corroborate the assessment– that valuing a business is a specialized discipline that requires specific expertise. While accountants and professionals do play a key role in the gathering of necessary current financial information, they rarely offer accredited business valuation services because industry specialization is required to properly perform them. Financial professionals will advise clients if asked, to seek out an independent business valuation from a qualified firm to determine true market value.
Here at A Neumann & Associates, our challenge is to help business owners understand that a “rule of thumb” number provided by an accountant or related professional, is simply a snapshot in time, and not a credible number on which to base any critical decisions. Valuations that are not done independently carry no weight for buyers or lenders. They can only be used internally.
According to Achim Neumann, President, A Neumann & Associates, “Our valuation firm uses an in-depth valuation process that includes a myriad of different assessments. Using only one approach, (while it may seem attractively simply), could lead to catastrophic mistakes in a business owner’s decision making process. “
Book value (Asset/Cost Based Approach), for example, is one of just seven approaches that the professionals at A Neumann & Associates obtain from the valuation firms. Each independent valuation will value differently according to relevance, certain weighted averages and measures, in a blend of the various valuation methods. In many cases, particularly in strongly cash flowing enterprises, the book value will carry little to no weight in the overall value analysis of the business.
According to Neumann, “Because we are involved in so many deal making experiences, our business brokerage firm has unique insight into the buyer side of business acquisitions.” Qualified buyers will be looking for an “arms-length,” independent Third-Party valuation of a company when considering a purchase. Not having one will work against sellers, signaling to buyers, that you are not serious or not prepared to sell your business. Keep in mind that personally derived valuations carry no credibility for buyers or lenders.
Examples of BIG TROUBLE…
- Imagine self-valuing your company (or taking your Accountants “rule of thumb” value) that is too high and basing major decisions like business sale, capital expenditures, labor force hiring’s, etc., on a “number” that has no factual financial backing in the marketplace.
- The majority of a business owner’s net worth is usually tied up in their business. Yet, at A Neumann & Associates, we see owners again and again who are misinformed or have no idea of their company’s actual value.
- The same holds true for the opposite scenario. Undervaluing the worth of your businesses may lead to missing out on existing market opportunities that may have been funded by your actual increase in Fair Market Value.
Lesson: Don’t find out ten years from now—do it now. Your business needs a report card. Assess where you are today… so you can be headed in the right direction tomorrow.
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A Neumann & Associates, LLC is a professional merger & acquisition and business brokerage firm with 25 years of experience in New Jersey, New York, Pennsylvania, Delaware and Maryland that assists business owners and buyers with the business transfer process in a completely confidential manner. The company is affiliated with BBN, which has 450 offices, and access to a national network of qualified buyers and sellers. For more information, please contact A Neumann & Associates at 732-872-6777.