Business Valuation is about Measured Analysis - Business Divestiture is about Advocacy
If you’ve given any thought to selling your business it is important to understand the distinctive roles your advisor(s) must play. Besides a CPA and Attorney, or sometimes a Financial Planner, the two key roles in the divestiture process are those of the Valuation Analyst and the Business Sales Intermediary (sometimes referred to as an M&A Investment Banker). Early in the process of understanding if or even when you may choose to sell your business determining value is an analytical process. The analyst looks at key and measurable drivers of value and applies that data to a variety of different models. Certain assumptions are made during the process, like “a market exists” or “neither buyer nor prospective seller are under duress”. Discount rate assumptions are made, and other mathematical assumptions, based on very specific methodology are made as well. Moreover, the financials are recast for non-recurring and key discretionary items to present the business in a “normalized” state. The analyst typically derives either a “Conclusion of Value” or a “Calculation of Value”.
But when an owner decides to sell their business the role of the advisor is different. While they will rely on business valuations, their role is to be your advocate in arguing every possible driver of the ultimate purchase price. And every concept available in the M&A toolbox becomes a lever point to argue for higher price. So, while the analysis uses models to consider value, the intermediary argues all lever points to prospective buyers.
Sometimes the individual doing the valuation is the intermediary. In this specific case it is important that they are able to seamlessly transition from their valuation work to being the owner’s advocate. For more information on this subtle distinction please contact us at 877-VALU-BIZ.
Posted by: John Klearman, Fair Market Valuations