It is common for business owners to arrive at their first meeting with an IBA professional with no idea what their business is worth. This is not a negative reflection on the owner. Properly determining the estimated value of a privately held company or family owned business is a sophisticated process that takes experience, knowledge, and the ability to subjectively assess market conditions for an entity that has no direct market comparable. A proper evaluation process should take into account the industry of the business, the financial performance of the company over a multiple year period, the demographics of its customer base, tangible & intangible assets, location, and market demand for the entity.
IBA is unique in the mergers & acquisitions (business brokerage) world in several ways with regard to the business evaluation process:
1. We have the knowledge & experience “in house” to properly evaluate businesses to determine their estimated market value. This is a critical component of our successful representation of our clients as we believe the ability to justify the price of a business from a position of knowledge to a buyer, CPA, lender, and/or attorney is necessary for professional representation. As contrast, it is common for our competition to outsource business evaluations because they do not have the knowledge & experience to complete the task internally. The question to ask yourself is would you want the expert who evaluated your business justify the price and answer questions about the assessment or have a salesperson present information based on another person’s work when they are trying to close a sale.
2. Our evaluations are provided as a complimentary service as a means of conveying our knowledge, experience, and superior customer service “risk free” to potential clients. The evaluation also serves as a screening mechanism for IBA to assess whether we are interested in the representation project. Many of our competitors charge for evaluations as a profit center and will commonly provide an above market value in an effort to win the business and have a happy customer immediately after payment.
3. We are accountable for the value suggested in our evaluations as 100% of our compensation is tied to successfully completion of a sale. It is common for our clients to sell within 10% of their list price and business sales completed at or above list price are regular occurrences for IBA professionals if the right market conditions exist. We also traditionally complete over 80% of the projects we take on annually, with the more difficult projects typically being the result of location and/or industry. Achievement of a list price to sale price correlation of this nature is extremely rare in the mergers & acquisition (business brokerage) community and is directly related to the depth of knowledge we are able to present about the businesses we represent for sale on behalf of our clients.
The above said, it should be noted that valuing a privately held company or family owned business is “subjective science”. The true definition of market value for a company is what a buyer & seller agree to in a “good faith” negotiation.
IBA professionals are also commonly hired as consultants to provide professional opinions related to business value as expert witnesses, for internal sales, family sales and partnership buy-outs, by business buyers, and for estate planning purposes. We are also a common resource for information on business value for banks, accounting professionals, appraisers, attorneys, financial planners, and consultants.