Asset Valuation

Asset valuation is used when a company is asset-intensive. Retail businesses and manufacturing companies fall into this category. This process takes into account the following figures, the sum of which determines the market value. Below are the most common factors in Asset Valuation:

o    Fair market value of fixed assets and equipment (FMV/FA) - This is the price you would pay on the open market to purchase the assets or equipment.
o    Leasehold improvements (LI) - These are the changes to the physical plant that would be considered part of the property if you were to sell it or not renew a lease.
o    Owner benefit (OB) - This is the seller's discretionary cash for one year; you can get this from the adjusted income statement.
o    Inventory (I) - Wholesale value of inventory, including raw materials, work-in-progress, and finished goods or products.

What Does Asset Valuation Mean?
Asset Valuation is the process of determining the current worth of a portfolio, company, investment, or balance sheet item.

What Is Included In The Valuation?
Asset valuation is the value of capital assets and fixed assets a company possesses in its financial portfolio. These values exist on the owner's balance sheet but are not usually stated in the real world but more for reasons of taxation.  Certain tools like, quantitative methods and statistics, financial statement analysis, ratio analysis and economic analysis, etc. are necessary to put a fair market value on them.

Why Are Valuations Done?
A valuation may be used to buy a company, sell a company, mergers and acquisitions of two existing companies, to sell shares of the company to key employees, for divorce estate settlements, to settle estate and tax issues, for insurance issues or to stay current, organized and congruent with the rapid growth of your business.

How Can I Prepare For An Asset Valuation Consultation?
Business appraisers, business valuators, and brokers start off requesting a copy of the past three years of tax returns and financial statements in order to prepare an overall view of your company's asset valuation. Other key pieces of information include all the salaries and "perks" that are directly paid to the client and his/her family members. From there, we will examine other relevant analyses in order to conduct a detailed asset valuation.  Initial consultations allow us to get an understanding of your goals and make you feel confident that we can help you obtain these goals.

How Are Assets And Earnings Best Demonstrated?
Most valuations require readjustments to tax returns and financial statements in order to appeal to the buyer. This is not to say we convey a false image of your company. It simply means we examine personal versus operational expenses, for example, and exclude personal expenses from the balance sheet and retain only those that are relevant to a potential buyer.

What If I Have A SBA Loan?
Small Business loans are common amongst small to medium sized businesses. Note that if you have a small business loan exceeding $250,000 then you are required to have an accredited business appraisal expert perform a business valuation in order to establish the value of your business with the existing loan.  Furthermore, if you are looking to take out a loan, you must have a business/asset valuation in place in order to be approved for that loan.

What Is The Difference Between A Business Appraisal, Valuation Or Evaluation?
The appraisal buyer must beware in this case. If the professional you contact cannot or will not provide an appraisal, a red flag should wave immediately. While it is common for many business appraisers to intermingle these terms, persons not qualified to provide expert appraisals, litigation support, expert testimony, reports that may face the scrutiny of Federal or State agencies, judges, and the like may try to sell you something short of what you really need.
An evaluation is a commonly used term that usually falls short of the requirements of the Uniform Standards of Professional Appraisal Practices (USPAP). Make sure the professional you choose has the proper training in USPAP procedures. Has the person provided reports that meet the above requirements? Have they qualified and testified in business valuation issues in a court of law? Have they taught or lectured on the issues of business appraisal? All these and many more credentials such as years of experience, professional memberships, education, experience in the real world of business sales, etc. will help guaranty that the appraisal you receive will provide you with the report you need. When choosing a person to place a value on your business, ask for their resume or Curriculum vitae (CV) to aid you in accessing their credentials. Contact George & Company today to schedule an appointment.