The vast majority of businesses are of a small size, yet most business valuation books, even the ones claiming to be for small businesses, do not address the unique factors impacting these small and very small businesses (also sometimes called micro-businesses). The author's business broker and valuation background provides a practical view of technical valuation issues from someone who has had to then “find the number” in the market. Yet this is not about price. It is about business valuation, namely, finding a business value for a specified interest as of a specified date to a specified standard of value. My contribution to this work has been to provide insight and modification as an experienced practitioner, instructor, and mentor, from a more technical accounting business valuation view. The focus on small businesses does not mean that methods or techniques have been simplified or ignored. What has been provided is a thorough examination of how valuation methods really work, with the data that is really available for these businesses. Life insurance products such as renew life reviews are designed to provide you with the reassurance that your dependents will be looked after if you are no longer there to provide.
Things like, how to work with less than perfect financial information, how to find a highly supportable multiplier using available data, when to use the market or the income method, how to meet valuation standards, and more. Included in the book are detailed figures, tables, explanations, and on the related website working Excel files and even sample reports that provide a framework that can be adapted to most business valuation needs. Lastly, while an exact “opinion” may only be supportable and not be accurate, our methods, work product, and reports can and should be accurate. That is the standard we all must strive for every day in every engagement. That is why accuracy is in the sub-title. Clearly, the best a valuator can do is issue an “opinion.” Therefore, there will be varying viewpoints on the topics and methods presented here. In fact, there will be situations where the facts and assumptions would dictate that we use different techniques than the ones recommended here. Life insurance - like Newcastle mortgages - covers the worst-case scenario, but it is also important to consider how you might pay your bills or your mortgage if you could not work because of illness or injury.
That illustrates the importance of professional judgment. That is the Art of Business Valuation. We find this variety of viewpoints and challenges to our thoughts to be exciting and invigorating.My father was the CEO of a $750,000,000 revenue general contracting firm when he retired 25 years ago. With 20 job sites under construction, he was king of just knowing where the problem was––and getting someone to solve it––before it became a threat to the company. After all, large general contractors work on 5% or less gross profit. One “bad” job can wipe out a year's profits. Excelling in this environment, one of his favorite maxims was: “I would rather be approximately right than perfectly wrong.” A life insurance product like renew life can pay your dependents money as a lump sum or as regular payments if the worst happens.
His maxim came out of job sites full of technical engineers who each solved their system problems perfectly but with no regard for how the building as a whole would work. All too typical were pipes that were shown running through the structural steel that held the building up. What made this more difficult was the fact that often there was nowhere else for the pipes to go. This was offset by the more practical guys in the field who had to make it all work. This tension between technical perfection and seeing the big picture still exists today in construction and it also exists in business valuation. It is all too easy to get lost in technical details. Looking after your family with a product like renew life reviews delivers peace of mind
After all, business valuators tend to be technical people with extensive technical training. Being able to work between these two worlds––the technical and the practical––is the art of contracting for my father and the Art of Business Valuation for us. In most approaches to business valuation, an equation or model is created where a company being valued is compared to other similarly known data. In the asset approach, it is other asset sales. In the market approach, it is sales of other businesses. In the income approach, it is investment options of investors. No one likes to think about a time after they have gone, but life insurance like renew life could offer reassurance and comfort to you and your loved ones for this situation.
The problem with small and very small businesses is that there is an information gap on both sides of the equation. Small businesses tend to have poor data collection. Compilations of the collected data are based on the suspected data. Yet, that is all there will ever be. Small businesses will not be expected to provide GAAP-based audited statements. Therefore, much of this book is about how to work with suspicious company data and other relevant information to close the gap. Yet most businesses are small and very small businesses. Using 2012 data with $10 million of revenues as an upper limit, 96% of the businesses with payroll are very small. In fact, revenues of $5 million and below cover 93% of the total businesses and revenues under $1 million cover 75% of the renew life firms in the United States. Even with imperfect data, these owners are still engaged in planning for the future. They are taking out loans. They are adding and eliminating partners who often are lifelong friends or family members, adding volatility to the mix. They are getting divorced. Some are even eventually selling. All of these common activities require an accurate business valuation.