Other valuation consulting companies are available, of course, but few use the data gathering systems, formulas, checking and double-checking techniques.
Our business value analysis includes an intensive examination of a firm's financial performance along with full identification of its owned assets. To determine a firm's value, many valuation / appraisal services will use the cost, market, and income methods; discounted cash flow and/or a host of business ratios; and assessments of market position and niche, market share and presence, and even the contribution offered by the management team.
In some scenarios, business valuators use "magic formulas," which amounts to a certain reciprocal of earnings or revenues to determine pay businesses value. A supermarket "expert" once stated that supermarkets could be valued at 7½ x earnings. Our response to this business valuation approach is simple: What and how are "earnings" defined and who is authorized and qualified to make this determination?
Some business valuators services spend dozens, even hundreds of hours doing field research with and/or for the client – and then spend more time gathering and interpreting data. That may be worthwhile for a client who is patient and has an ample budget set aside for the project. We don't necessarily object to these methods, but Appraisal Associates’s approach is different.
The Appraisal Associates valuations are based on facts and current hard data. When complete, fully analyzed and verified, data is entered into the computer model and compensated by the formulas, which contain capitalization rates and other algorithms proven over time. We don't disagree with valuators who use subjective factors (market presence, share, reputation); but we believe that those factors should be considered after the hard numbers have been used to produce a "real world" business value.
Only through generating real business profit over time will an investor's stake be returned. After all, a business buyer's true profit (profit received after the return of all original principal) begins only after the total investment has been fully recovered. It is therefore imperative that the price or value of the business as well is this growth potential be accurately established at the outset of negotiations.
The Appraisal Associates non-subjective, hard-data approach to business valuation is closest to reality. We hope you will give us an opportunity to demonstrate its utility.
Why can’t I have my accountants or auditors appraise my business or assets?
Accountants and auditors are great at what they do: help you prepare financial statements and tax returns, and assist with many financial decisions. However, accountants and auditors have not been trained to perform business valuations or assets appraisals. You should use a valuation expert to appraise your business or assets, as, among other things, your accountants or auditors can not be independent since they do your accounting work. Most accountants and auditors are not willing to appraise their own client’s business or assets even if they are qualified to do so.