Last Updated on February 23, 2023 by lukesguide
Are you thinking about hiring a business valuation expert to value your business?
If the answer is yes, you are in luck because you have stumbled upon our ultimate guide to hiring a business valuation expert.
This guide explains the process of hiring a business valuation expert, what to look for when hiring a business valuation expert, the benefits of hiring a business valuation expert, and the costs involved.
What Does A Business Valuation Expert Do?
A business valuation expert is a professional who assesses the value of a company or business.
A business valuation expert will use their expertise in finance, accounting, economics, and market analysis to determine the value of a business. Typically, a valuation is undertaken in the context of a specific purpose, such as a merger, acquisition, or sale of a business.
Business valuation experts typically analyze financial statements, economic conditions, and market trends to determine the value of a business.
They may also review industry data, sales forecasts, and the company’s competitive position in the market or industry.
When Should You Consider Hiring a Business Valuation Expert?
As a business owner or investor, there are several circumstances under which you may wish to hire a business valuation expert. These include:
Buying Or Selling A Business
In many cases, the first time that someone will think about obtaining a valuation of a business or company is when they are considering buying or selling one.
If you are thinking about selling your business, a business valuation expert can help you determine its true value and ensure that you receive a fair price that reflects the hard work you have put into it.
Similarly, if you are interested in buying a business, a business valuation expert can help you understand the true value of the business and negotiate a fair price.
Obtaining Finance or Re-financing
As a business owner, there will be situations where you need extra capital to grow.
If you are seeking debt capital, institutional lenders will require a valuation of your business to assess and approve your loan.
Similarly, if you are looking to refinance existing business debt facilities, your bank will likely want an up-to-date valuation of your business before proceeding with any changes.
Business owners will often take out insurance policies in order to preserve the value of their business. However, these policies should not be a ‘set and forget’ proposition.
Unless these policies are reviewed at regular intervals, business owners risk being ‘underinsured’ as the value of their business increases over time.
Accurately valuing your business and assets is crucial to ensure that they are insured for the correct sums.
A business valuation expert can help in determining the business’s true value and avoid ‘under-insurance’ in circumstances where a loss event occurs.
It is a fact of life that in business, disagreements, and disputes between investors, shareholders or business partners will arise.
Sometimes these disputes cannot be resolved which often means these individuals will decide to part ways.
This will usually involve dissolving or breaking up the business, selling it off, or one or more investors having their interest bought out by the other investors.
A business valuation expert can help with valuing the business accurately so that each party is fairly treated and costly legal battles are avoided.
How to Choose the Right Business Valuation Expert for Your Needs
Before you make a decision about which business valuation expert to hire, there are a few things that you should consider first.
While there is some research to be done, it is well worth spending the time to do this in order to find the right valuation expert for your needs.
Here’s a list of some of the key things you should look for when hiring a business valuator:
Expertise and Qualifications
It is important to look for a valuation expert who is qualified with a strong educational background in finance, accounting, economics, or a related field. Check whether the valuer is a member of a professional association such as the Australian Institute of Business Brokers. Also, consider the valuer’s experience valuing businesses similar to yours (i.e. size, industry, etc.).
Communication and responsiveness
It’s important to work with a business valuation expert who is responsive and communicative. They should be able to explain their analysis in a way that is easy to understand, and they should be available to answer your questions and address your concerns.
Valuation Approach And Methodology
Look for a business valuation expert who uses a rigorous and transparent methodology that aligns with your needs. They should be able to explain their approach and methodology, and provide you with detailed reports and presentations that are easy to understand.
Fees and pricing
Consider the cost of the business valuation services, and weigh this against the value that the expert can provide. While it’s important to find a business valuation expert who is within your budget, it’s also important to choose someone who can provide accurate and thorough analysis.
How Much Does It Cost to Have A Business Valuation Done?
The cost of undertaking a business valuation will vary depending on several factors, including the size and complexity of the business, the purpose of the valuation, the valuation methodology adopted, and the qualifications and experience of the valuation professional.
Generally, a basic desktop valuation for a small business can cost anywhere from $1,000 to $5,000.
Whereas a more complex valuation for a larger business with multiple divisions, locations, or complex assets could cost $10,000 or more.
If the valuation is required for a legal matter, such business sale or shareholder dispute, the cost could increase due to the added complexity and required documentation.
It’s important to note that while cost is a factor to consider when choosing a valuation professional, it’s also important to prioritize finding a qualified and experienced professional who can provide a comprehensive and accurate valuation to avoid any disputes of its validity later on down the road.
What Is The Most Common Way Of Valuing A Small Business?
The most common way of valuing a small business is by using the “earnings multiple” method. This method involves multiplying the business’s earnings (such as net income or EBITDA) by a factor, or multiple, that is determined by industry standards and the business’s specific characteristics.
For example, a business with $100,000 in net income and a multiple of 3x would have a valuation of $300,000. The multiple that is used can vary based on factors such as the industry, size of the business, growth potential, and risk.
Other valuation methodologies commonly used by valuation experts include:
Market Or Sales Comparable Method
This method compares the business to similar businesses in the same industry that have recently sold. The sale prices of these businesses are used as a benchmark for valuing the business and its assets.
This method values the business based on the value of its assets, including tangible assets such as equipment and inventory, and intangible assets such as intellectual property and goodwill.
Discounted Cash Flow Method
This method calculates the present value of future cash flows generated by the business, taking into account the time value of money and the business’s risk profile.
Each of the above methods has its strengths and weaknesses, and the appropriate valuation method will depend on the specific circumstances of the business being valued.
It may be worth spending some time researching the common valuation methodologies used for businesses similar to your own so that you can be ready with any questions for potential valuation expert candidates.
What Are The Benefits of Hiring a Business Valuation Expert?
There are several benefits to hiring a business valuation expert to value your business, including:
Business valuation experts have the knowledge and experience to accurately value a business. They can consider a wide range of factors that impact the value of the business, such as financial performance, market trends, and the competitive landscape.
Understanding the value of your business can be tricky and sometimes, an emotional process. A business valuation expert provides an objective, unbiased assessment of the business’s value. This can be important in situations where emotions can cloud judgment, such as in the event of a dispute between partners or shareholders.
A business valuation expert’s report can lend credibility to the valuation, especially in situations where the valuation is needed for legal or financial purposes.
A business valuation expert can explain the valuation process and results in a clear and concise manner, making it easier for business owners to understand the value of their business.
Business valuation experts can provide guidance on how to increase the value of the business and identify areas of improvement that could impact the business’s value.
In situations where the business is being sold or a business partner is exiting the business, a business valuation expert can help negotiate a fair price and terms for the transaction.
Overall, hiring a business valuation expert can provide peace of mind for business owners, help them make informed decisions about their business, and ensure they receive a fair valuation.
Common Mistakes to Avoid When Hiring a Business Valuation Expert
When hiring a business valuation expert, there are several common mistakes that should be avoided to ensure that the valuation is accurate and reliable.
Here are some mistakes to watch out for:
Choosing an inexperienced or unqualified expert
It’s important to choose an expert who has the necessary education, certification, and experience to accurately value your business. Be sure to check their credentials and references before hiring them.
Failing to disclose all relevant information
To ensure an accurate valuation, it’s important to provide the valuation expert with all relevant information about the business, including financial statements, tax returns, and industry trends. Failure to provide this information can result in an inaccurate valuation.
Being influenced by emotions
Business valuations can be emotional, especially if the business is a family-owned or closely-held business. It’s important to keep emotions in check and make decisions based on the facts and data presented in the valuation report.
Rushing the process
A business valuation should be a thorough and detailed process. Rushing the process can result in an inaccurate valuation. Allow sufficient time for the expert to complete the valuation and provide a comprehensive report.
Focusing only on the cost
While cost is an important factor when choosing a business valuation expert, it should not be the only factor. It’s important to choose an expert based on their qualifications, experience, and reputation.
Not understanding the valuation process
It’s important to have a basic understanding of the valuation process to ensure that you can ask informed questions and make informed decisions. Don’t be afraid to ask the valuation expert to explain the process and the results in plain language.
Choosing a competent valuer that you can trust is not a quick process but when done right, it can save you a lot of time and money.
A talented valuation expert is worth their weight in gold and engaging the right one could add significant value to your business.
Are you in the process of searching for a valuation expert to value your business? Or have you worked with one before?
Let us know in the comments!
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