Determining your company’s exact worth is a crucial – but sometimes challenging – first step before making major financial decisions. Whether you’re selling, passing it to the next generation, or making other considerations a Modern Woodmen representative can be your financial partner and help guide you through the processing of accurately valuing your Pleasanton business accurately in today’s market.

The right business valuation empowers you to pursue financial strategies that match your vision. As a fraternal financial services organization, Modern Woodmen uses business valuations to members and their families to make the best decisions for their unique circumstances.

Why get a business valuation?

Knowing the true worth of your business provides an objective valuation and benchmark to assess the fairness of purchase offers. It also helps prospective buyers secure funding by providing lenders or investors a clear picture of your company’s value.

For business owners nearing retirement, a valuation can help you plan your transition strategy. A valuation can help you get maximum value when selling or transferring ownership.

I encourage Pleasanton business owners to obtain a valuation to support decision-making at critical junctures. Though Modern Woodmen representatives don’t directly assess your business’ value (that’s done by professional appraisers), we can help you use that information to make the right financial decisions to accomplish your business goals.

Common valuation methods
Qualified professionals use four main approaches/methods to determine a business’ value.

1. Asset-based: Totals the fair market value of all tangible assets like real estate, equipment, and inventory. Easy to calculate but may undervalue intangible assets.
2. Market: Compares your company to similar ones recently sold. Useful but depends on availability of comparable sales data.
3. Income: Forecasts future cash flows discounted to present value. More complex but factors in future earning capacity.
4. Multiples: Applies a multiplier based on your industry to revenue, EBITDA, or other financial metrics. Quick but uses industry averages rather than company specifics.

Each method has pros and cons. Most appraisers blend approaches to determine a fair overall estimate. We recommend working with an accredited appraiser with experience in your industry.

Key factors that determine worth
Appraisers use these key factors to accurately value a business.

• Financial performance: Profitability, growth, stability and cash flow indicate earnings potential. Strong recent financials often translate to higher valuation.
• Management team: A company heavily reliant on an owner-operator may have lower value without the current owner’s future involvement. A deep management bench adds value.
• Customer base: Large, stable customer relationships suggest lower future customer acquisition costs. Customer concentration also affects risk profile.
• Competitive environment: Barriers to entry, market position, substitute products, and competitive threats influence future profit margins.
• Assets and infrastructure: Real estate, proprietary technology, specialized equipment and other resources affect valuation, depending on transferability.
• Growth potential: Scale-up capacity or demonstrated growth warrant higher multiples. Stagnant businesses are discounted.
• Brand: Well-known brands with loyal followers carry higher intangible value. Locale matters too, like a thriving Pleasanton presence.
• Risk profile: Higher perceived risk reduces value through higher capitalization rates or discount rates. Stability commands premium.

Getting a professional valuation
Given the many nuances involved, it’s wise for Pleasanton business owners to engage an accredited professional appraiser before making major decisions. Here are some tips for getting a fair valuation:

• Look for niche experience. An appraiser’s expertise in your industry can translate to a more accurate valuation.
• Check credentials as an indicator of
• Ask about methodology. Appraisers should use recognized approaches appropriate for your business profile.
• Read client reviews to evaluate quality of the experience.
• Discuss expected use of the valuation. Appraisers customize reports for specific purposes, such as sales, financing or estate planning.
• Get references from other Pleasanton business owners. Peer referrals carry more weight.
• Compare multiple estimates. Variances can reveal useful insights.
• Learn what fees cover. Most are for professional services only and do not include out-of-pocket expenses.
• Ask about turnaround time. Depending on complexity, full valuations may take 4-6 weeks.

When to revalue your business
Consider reevaluating your business every two to three years. As market conditions change, so does your company’s value. Periodic reassessments ensure a current value.

You should also reevaluate after major events, like acquiring a competitor, losing a major customer, launching disruptive technology, or when preparing to exit the business. Any developments that materially impact earnings or risk profile can shift valuation.

Use valuation to chart your course
With a current, professional valuation in hand, Pleasanton business owners have an objective benchmark to inform pivotal moves like:

• Selling or transferring ownership: Set expectations with buyers and heirs.
• Securing financing: Strengthen your case to get optimal debt or equity funding.
• Determining sale price of partnership interests: Avoid disputes among partners.
• Splitting assets in divorce: Ensure equitable division in settlements.
• Gifting interests to family or charity: Prevent tax penalties on transferred interests.
• Buying out shareholder interests: Protect against lawsuits over price.
• Establishing value of estate assets: Smooth estate planning and transfers.
• Structuring employee stock ownership plans: Ensure workers get fair stakes at fair cost.
• Calculating damages in lawsuits: Support claimed losses.
• Determining advisability of sale or merger: Weigh options and offers with clarity.

Take the first step
Determining your business’ worth often marks a financial crossroads when you reap returns on years of hard work and pivot toward realizing personal and family goals. Modern Woodmen representatives have helped Pleasanton families navigate such transitions with accurate, real-world valuation as your guide. Contacting us today to discuss your unique situation and needs.

* Securities and advisory services offered through MWA Financial Services, Inc., a wholly owned subsidiary of Modern Woodmen of America. Member: FINRA, SIPC.

Share This