Valuation & Transaction Advisory Q & A

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.

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.

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

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.