1. Define The Assignment
This can be done over the phone or in person. We will review the reason for the valuation, the “as of” date, and the date of required completion. These factors determine the level of detail and the type of report required. Shortly thereafter, a fee will be quoted and, if accepted, will be followed by an engagement letter for the client’s signature, a detailed questionnaire about the business, and a request for financial statements, budgets, etc.
2. Gather Information
After an initial review of your financial statements or tax returns and your responses to the questionnaire, we will meet to learn in greater detail the business’ history, its operations, strategy, and competition. We will discuss numerous financial statement details and review projections. This is an extremely important meeting; the more informative it is, the better the valuation. Research on the industry in which the company operates and the economy will also be conducted during this step.
3. Normalize the financial statements
Many financial statements present a picture that is very different from economic reality. The statements will be adjusted as necessary in order to more closely reflect the business’ true economic financial position and results of operation on a historical and current basis.
4. Analyze the financial statements
An in-depth analysis will be conducted, trends examined, and comparisons made with industry averages.
5. Defining and measuring the benefit stream
The type of benefits utilized might be stipulated by the purpose of the valuation, state law, the valuation approach utilized, the client, the nature of the interest being valued or other factors. Independent projections will be generated, if necessary, which management would need to review.
6. Apply applicable valuation approaches and methods
Depending on the situation, one or a combination of approaches may be utilized to value your business. Within each approach, multiple methods exist. For detailed or summary reports, Big Sky Business Valuations will choose the approaches and methods to apply. For a calculation report, the client may direct the approach and method to be utilized.
7. Apply discounts and premiums as applicable
A minority interest that lacks control of the business is not worth as much as a controlling interest in the same business. Therefore, a discount for lack of control is applied to the value of the minority interest. An ownership position that cannot be quickly converted into cash is not worth as much as one that can. Thus, a discount for lack of marketability is applied. Other discounts or premiums may warrant usage.
8. Finalize the report and present it to management.
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