Business Valuation, Growing Value And Liquidity Realization (Part IX Of Book Series)

Michael Gilburd - Business Valuations

What Will the Results Show?

Companies and brands are evaluated by their customers and prospects across a range of factors. Your first job is to determine what factors are relevant to each individual situation. This is done any number of ways:

• By conducting a number of interviews with company staff to get their take on what is felt to be relevant
• Exploring previous research, the company may have conducted to determine customer attitudes or satisfaction
• Conducting a small number of telephone interviews with selected clients (both past and present) to surface their attitudes toward the company
• Conducting one or two focus groups to surface attitudes as well as brainstorm factors that would be important to customers in keeping them loyal

Once the relevant factors are agreed upon, data is collected among the appropriate target.

What to expect: Research Results

For purposes of illustration, assume the factors previously outlined are the ones that should be evaluation, that the data has been collected and that the results emerged on the following chart:
% who agree strongly with the statement for:
Your Company Your Major Competitor
Being trustworthy 75% 50%
Having quality products 70 55
Providing good value for money 65 75
Having great customer service 65 65
Being innovative 80 40
Delivering what is promised 75 60
Having good return policies 50 50
Being on time with answers 90 90


As the chart shows, Your Company is at a competitive advantage in a number of areas:

• Being trustworthy, having quality products, being innovative, and delivering what is promise
Your company is at a disadvantage in one area:
• Providing good value for the money
And you are at parity with Your Major Competitor on:
• Having great customer service, having good return policies, and being on time with answers
In a valuation situation, these findings become critical to marking a Valuation + premise. It shows Your Company much stronger than Your Competition on three factors and somewhat lower only on one.

Assume your reason for doing a valuation is to make the case for obtaining a loan. You can now make the statement that Your Company outperforms Your Competition in a number of important areas and that you know in one area you realize that you must work harder to convince clients that you do, indeed, provide good value for the money.

Conversely, you and your competition are doing a great job with being on time with answers, but both have work to do in regard to improving customer service and return policies.

It is important to separately value goodwill and intangible items:

o Trademarks & Trade names o Brand names & Logos
o Goodwill o Websites and Web Properties
o Process Patents & Patent Applications o Social Media and SEO
o Technical Documentation o Product Patents
(Laboratory Notebooks, Technical Know-how, etc.) o Franchise Rights and Agreements
o Trade Secrets o License Agreements
o Customer Lists o Royalties

With this knowledge in hand you can make a strong case to a potential lender that you’re better in many areas vs. your competition and at least as good as your competition in several other areas. Perhaps more importantly, you now know where to focus your efforts in order to improve your competitive situation.

Generally, these methods value your business as a whole and therefore, goodwill and other intangible assets are considered as part of the valuation. They are only added when considering the asset approach.


What to expect:
Your Your
Company Competitor

Market Approach $8,000,000 $8,000,000

Income Approach 6,000,000

Asset Approach 3,000,000

Preliminary Value $5,600,000 $8,000,000

Additions to Asset Approach $3,000,000
Trademarks 1,200,000
Brand 4,300,000
Patents 2,000,000
Customer List 1,000,000
Other IP 500,000

Determination of Value $12,000,000 $8,000,000

Selection and weighting of methods (See, ASA Business Valuation Standards © 2009 American Society of Appraisers*)

A. The selection of and reliance on appropriate methods and procedures depends on the judgment of the appraiser and not on any prescribed formula. One or more approaches may not be relevant to a particular situation, and more than one method under an approach may be relevant.

B. The appraiser must use informed judgment when determining the relative weight to be accorded to indications of value reached on the basis of various methods, or whether an indication of value from a single method should be conclusive. The appraiser’s judgment may be presented either in general terms or in terms of mathematical weighting of the indicated values reflected in the conclusion. In any case, the appraiser should provide the rationale for the selection or weighting of the method or methods relied on in reaching the conclusion.

C. In assessing the relative importance of indications of value determined under each method, or whether an indication of value from a single method should dominate, the appraiser should consider factors such as:

1. The applicable standard of value

2. The purpose and intended use of the valuation

3. Whether the subject is an operating company, a real estate or investment holding company, or a company with substantial non-operating or excess assets

4. The quality and reliability of data underlying the indication of value

5. Such other factors that, in the opinion of the appraiser, is appropriate for consideration

Additional factors to consider. As appropriate for the valuation assignment as defined, and if not considered in the process of determining and weighting the indications of value provided by various procedures, the appraiser should separately consider the following factors in reaching a final conclusion of value:

A. Marketability or lack thereof, considering the nature of the business, the business ownership interest, security or intangible asset.

B. The effect of relevant contractual and/or other legal restrictions.

C. The condition of the market(s) in which the appraised interest might trade.

D. The ability of an owner of the appraised interest to control the operation, sale, or liquidation of the relevant business.

E. Such other factors that, in the opinion of the appraiser, are appropriate for consideration.

Clearly, a bank or other lenders are far more likely to grant you the loan you are seeking when they know you’re not only doing well vs. competition but have the knowledge to take your business to the next level.

In Summary

Whatever your reason for wanting your company valued, goodwill will always play a role. In the absence of hard data, the value of goodwill tends to be a contentious discussion. The most authentic valuation is best achieved by knowing exactly how your customers and prospects feel about you. Such knowledge can effectively neutralize those who are striving to underestimate your value.

Have a question? Contact Michael Gilburd.

Michael Gilburd, President of ValuCorp International, Inc., has more than forty years of experience in financial transactional services and corporate development.Founded in 1999 by Mr. Gilburd, ValuCorp is a national firm offering expert business valuation services and consulting of creating, improving and preserving value, capital markets and corporate finance advisory, transaction and fairness opinions, restructuring advisory, and management consulting. While serving many industries, ValuCorp specializes in financial institutions, healthcare companies, manufacturing and distribution, professional service firms, energy companies, construction, real estate ventures, and consumer product companies.

Prior to ValuCorp, Mr. Gilburd was:
• Managing Director of corporate finance for two American Express companies, where he assisted in raising funds for various transactions, including acquisitions and public offerings.
• National Director of Corporate Finance for BDO USA, one of the nation’s largest accounting and consulting firms, and a member of their International Corporate Finance Committee.
• Internal Revenue Agent, Manhattan District, New York

Mr. Gilburd has authored many Business Valuations, Family Limited Partnership Valuations and Loan Packages for private and confidential transactions and settlements.

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