Valuation & Transaction Advisory Q & A

Q & As

Question:

What is a business valuation and how is it used?

Answer:

A business valuation is the estimated economic value of a company at a specific point in time. The value of a company can vary over time depending on numerous internal and external factors, and there are several methods that can be used to calculate the projected value.
Valuations are used for a variety of reasons, including negotiating pricing when buying or selling a business, planning for future taxation, establishing ownership, and providing litigation support, among others.

It’s important that your valuation specialist be correctly credentialed and experienced. At HW&Co., our valuation professionals have obtained AICPA’s Accredited in Business Valuation (ABV ®) designation, in addition to a wealth of technical expertise and real-life experience.

Question:

What qualifications are important when selecting someone to appraise my business?

Answer:

Only accredited business appraisers are appropriately trained and qualified to provide defensible business valuation reports. Look for the following designations when selecting your valuation advisor:

  • Accredited in Business Valuation (ABV) of the AICPA
  • Accredited Senior Appraiser (ASA)
  • Certified Business Appraiser (CBA)
  • Certified Valuation Analyst (CVA)

At HW&Co., our valuation professionals have the ABV designation.

Question:

Why might I need a business valuation?

Answer:

You might consider obtaining a business valuation to provide information for the following:

  • Estate and Gift Tax Planning
  • Financial Reporting
  • Owner/Management Transaction Planning
  • Buy-Sell Agreements
  • Purchase Price Allocations
  • Personal  vs. Business Goodwill Allocations
  • Share Based Compensation
Question:

How do business appraisers determine value?

Answer:

There are three general approaches to determining an entity’s value:

  • Asset Method: This method calculates a business’s fair market value by measuring its assets, less its liabilities. It’s often used when evaluating underperforming companies, rather than those that are profitable.
  • Income Method: This approach evaluates a company’s projected future earnings or cash flows against its risks. This method must account for anticipated changes in growth rate, revenue, profits, taxes, working capital needs and capital expenditures.
  • Market Method: This approach values a company by comparing it to similar companies with corresponding characteristics that have recently sold or experienced merger transactions, and then determining the value on that basis.

 

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