Need a business appraisal? Ask about the process.

Aug 16, 2023

Do you need an appraisal of a business? Whether for gifting shares of a business, settling a divorce, or buying/selling a business, it is important to evaluate the business valuation professional. That may be difficult to do as this may be your first time needing to hire a business appraiser.

No matter what is triggering your need for an appraisal, it is important to understand the process that the professional follows in developing the valuation.

Why does process matter?

Process matters because it is important that the valuation is thorough and complete. A well-documented opinion of business value is defensible and will stand up to rigorous scrutiny.

We have developed a proven process comprised of a series of logical steps that make our company valuations defensible. Our reports document what was done, why it was done, how it was done, and the conclusions drawn and why those conclusions are reasonable and credible.

To date, when a business valuation has required expert testimony to present clearly and logically how the valuation was prepared and determined, the ruling authority has always ruled in favor of Certified Business Appraiser and President, Lou Pereira.

A Summary of Our Valuation Process

Our valuation reports are developed to conform to the highest and most inclusive of all the applicable standards. Our complete and thorough process is summarized in the below 6 steps:

  1. A careful and thorough qualitative and quantitative analysis of the business, including the history, products, markets, customers, management and employees, facilities, capital structure, and competitors. This step includes a site visit, which may be virtual, to tour the operation and interview management.
  2. Review important documents including shareholder agreements and by-laws, key customer contracts, and leases.
  3. Complete detailed financial analysis of the past 5-7 years of income statements and balance sheets, common-size and industry peer group analysis to identify trends and anomalies.
  4. Construct a forecast of expected future operations.
  5. Apply the three generally accepted business appraisal approaches:
    • Income Approach – earnings relative to public market returns.
    • Market Approach – research transactions of similar businesses, and develop price to revenue and earnings multiples, which are applied to this business.
    • Asset Approach – analyze the underlying assets and consider value in liquidation.
    • Reconcile the indications of value from the three approaches into a conclusion.
  6. Document all the relevant research, information collected, analysis, observations, and conclusions in a detailed written Appraisal Report, compliant with USPAP.  The company valuation reports are typically 100 – 150 pages or more depending on the specific facts and circumstances of the case, with all the information needed to understand and agree with the conclusion of value.

If you need a business valuation, be sure to assess the track record of the business valuation professional who will do the work and be comfortable with his/her track record and adherence to a complete and thorough process. Learn more about Lou Pereira.

When Values Matter. Process Matters.

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