Jan

18

2018

Why Banker Valuation?

Jan 18 2018

Why Banker Valuation?

Thank you FLAGGL!

Last November we attended our first FLAGGL (Florida Association of Government Guaranteed Lenders) Conference in Orlando, Florida. We were a Gold Sponsor and the conference was a huge success for Banker Valuation. In addition to meeting prospective clients, we were able to meet face to face with many clients who have been using our business valuation tool for years.  It was wonderful opportunity to engage with our existing subscribers and learn how they benefit from using our business valuation tool.

The “Why Banker Valuation?” list is an internal Top 10 List we keep on hand summarize who is using our tool and more importantly why? We’ve decided to share the list on the Banker Valuation blog for the Lenders (SBA and Conventional/Bank and Non-Bank), Wealth Managers, Loan Packagers and other Lending Service Providers who land on this page and want to discover the answer to the question…Why Banker Valuation?

Why Banker Valuation?

  1. Obtain an accurate & reliable business valuation in less than 15 minutes.
  2. Confirm the purchase price is reasonable at the beginning of the loan process, before hiring a third-party firm.
  3. A value assessment tool used to pre-screen business acquisition deals up to $5 million.
  4. The valuation report meets the SBA’s  requirement for loans $250,000 and under.
  5. The only business valuation model that uses over 10,000 SBA transactions to support a purchase price.
  6. 4 of the Top 10 SBA Lenders use it as a trusted source for business appraisals.
  7. 3 of the country’s largest Loan Packagers use it to assist their lending clients.
  8. Wealth Managers use it to help manage the portfolios of clients who own businesses.
  9. Web-based, no software to download.
  10. Cost effective, unlimited valuations and comp searches for one small annual fee.

Furthermore, we believe it’s important to point out that our business valuation tool utilizes all three valuation methods (the income, asset, and market approaches) creating a valuation with an accuracy unmatched by any other web-based valuation technology. Finally, Banker Valuation was created by Steve A. Mize, ASA, one of the leading business valuation professionals in the country.

Give it a Try!

In conclusion, we work hard to provide the lending community with the most accurate and dependable business valuation tool available. If you’d like to give Banker Valuation a try we offer a free trial on www.bankervaluation.com or feel free to call us directly 727-803-0204 and we will be happy to set up a trial for you.

Jun

29

2017

The Current State of Small Business Lending

Jun 29 2017

Small business loan applicationBetween the federal government’s recent hike in loan interest rates, and the slowing of bank lending in general, now’s a good time to gauge the small business lending climate as it stands after the first quarter of 2017.

Here are just a few highlights and key indicators we’ve discovered.

Recession Woes Still Linger

Even though the brunt of the last major recession was felt by most nearly a decade ago, it still keeps many small businesses from taking the leap into lending. The small business lending industry has improved considerably since then, but the trade off has been smaller loan requests ($25,000 and under) from larger regional and national banks. Dodd-Frank has been instrumental in causing smaller banks to merge, making it even less likely for small businesses to partner up.

Come Prepared With a Plan

With most community and traditional banks, the first indicator of a healthy investment is still a positive credit history. Lately, though, many lenders have been shifting focus toward the presence of a well-crafted business plan. The more solid a framework lenders have to go off of when making line-of-credit decisions, the better chance small business may have to get the loans they need to grow and expand.

Self-Funding is on the Rise

In an attempt to lower debt risk, while still making a substantial investment in one’s business, small business owners are self funding more now than ever before. This indicates that businesses have the money needed to fund growth and expansion efforts, but are becoming increasingly debt averse. CDFIs, traditional banks, and even credit unions will have to get creative by offering small, agile loan options that have lower interest rates, that businesses can pay back quickly, while increasing their credit scores.

Staying a Step Ahead

To make the best small business valuation-related decisions, it pays to keep track of current trends and best practices, while keeping a sharp eye towards the future of the industry. The more connections you can make between the needs of business owners and the current state of the industry, the more success you stand to achieve in your career moving forward.

Discover how an online business valuation tool can open your doors to new opportunities—explore Banker Valuation’s membership offers and one-time business valuation solutions.

May

31

2017

How “Unicorn” Startups Affect Business Valuations

May 31 2017

Silicon valley unicorn concept with hand holding smartphone connected to social mediaStartups, especially those in the technology and consumer products industries, have been known for earning business valuations that are seemingly astronomical. Millions and millions of dollars get invested into hot, new companies, but some of those companies ultimately fail to live up to expectations, which can cause financial issues for many down the road.

Here, we highlight a few ways in which overvaluation can have an adverse effect the valuation industry, and provide some insights on how to help restore the balance between true and assumed business values.

Economic Inflation and Deflation

Much like a human being taking a deep breath, the overvaluation of a company tends to hyper-inflate the larger industry it’s a part of. This inflation can affect everything from the business decisions made internally, to the investment choices venture capitalists and others make on companies similar to the unicorn startup in question.

Eventually that inflated sense of value is going to have to deflate, or exhale, which can cause economic anxiety within a respective industry. This can lead to overly reserved valuations in the future, harming a business owner’s chances of being valuated properly.

Public Perception vs. Private Interests

When it comes to running a successful business, especially one that relies heavily on public investment, image is everything. If a “unicorn” valuation exceeds that of what the consumer population deems fit, it can negatively affect the way the public perceives that company.

Companies like Cloudera and Snap, Inc. saw swift declines in positive public sentiment, when their initial valuations didn’t match when it came time to go public.

Proximity also plays a major role in the proper valuation of a company. For example: Tech Company A is gaining a lot of traction in the Silicon Valley area. Investors and VCs are clamoring to get in on a piece of the action. A focus group of 100 non-Bay Area residents shows that nearly 93% of them have never heard of Tech Company A, nor would they use their services to fulfill any immediate needs.

That lack of proxemics and relevancy can cause private overvaluations to take a major hit when it’s time to go public with an IPO.

Getting Back on Track

The best way for business valuation firms to restore a sense of balance is simply by being more patient when it comes to evaluating the long-term value and shelf life of a business. Risk analyses and five-year plans are great resources that can be used to gain a better sense of how a startup is destined to perform in both present and future economic climates.

Discover how an online business valuation tool can open your doors to new opportunities, whether it’s a startup or veteran company—explore Banker Valuation’s membership offers and one-time business valuation solutions.

Mar

30

2017

Benefits of Using an Online Business Valuation Tool

Mar 30 2017

How can an online business valuation tool help your institution?For financial service providers working with commercial operations, having an accurate and recent business valuation is the basis for many of your most important decisions. From lending to mergers and acquisitions, you are making an investment in your clients, as well as your own bottom line, with each transaction.

That’s why you need information you can trust, and you need it right now. An online business valuation tool can give you a clear and instant image of a business’ potential. Leveraging an easy-to- use, intuitive business valuation software can provide you with reliable information on valuations and comparable transactions, allowing you to take advantage of opportunities as they arise.

Gain access to accurate, reliable data

Where you get your information from matters. Business acquisitions are large investments, both for your clients, as well as your institution. Gaining access to accurate, reliable data can mean the difference between a sound investment and a missed opportunity.

Look for a business valuation tool with trusted credentials and a reliable source of information. As an example, Banker Valuation gathers data from national, regional and local SBA lenders across the country. This data is filtered and cross-checked for accuracy, and covers all major industry classifications.

Make well-informed decisions faster

With an online business valuation tool, you can have a value estimation you can trust in 15 minutes or less. Not only does a quick business valuation add immeasurable convenience to your process, it can actually help you take advantage of more, and better, business opportunities. The business world moves incredibly quickly, and being able to make well-informed decisions faster can give you the competitive edge you need to advance in such a fast-paced industry.

Eliminate the need for third-party appraiser

Saving you time and money—that’s what online business valuations are all about. In order to make lending decisions, you need to have the correct information, as soon as possible. This used to mean engaging a third-party appraiser, paying thousands of dollars and waiting days, if not weeks, for their findings. That process can be significantly expedited with an online business valuation tool, not to mention the cost is just a fraction of what a third-party appraiser will charge.

Pre-screen larger prospects

In transactions exceeding $250,000, a third-party appraiser is required, but that doesn’t mean an online valuation tool can’t help you beyond small business valuations. Like we said, the business world moves quickly, and not being able to act on an opportunity may mean missing your chance. An online business valuation allows you to pre-screen larger
prospects in a matter of minutes before hiring an appraiser, expanding your field of opportunities.

Discover how an online business valuation tool can open your doors to new opportunities—explore Banker Valuation’s membership offers and one-time business valuation solutions.

Feb

27

2017

3 Calculation Models Used During Business Valuations

Feb 27 2017

3 Calculation Models Used During Business ValuationsWhen it comes to business valuation appraisal, every company has their own method of calculating business worth. But have you ever wondered how, exactly, to value a company?

Regardless of how much money one has put into renovating their business space, how many assets they have, what their inventory looks like, or how much revenue they’ve raked in last fiscal year, it is a culmination of all of these things that determine a company’s value. So what business valuation appraisal methods are most common?

Assets-based

One of the simplest ways to value a business is to add up all of the assets and subtract any pending debts. Of course, this is easier said than done. Hard assets like equipment needed to do the job are not going to be worth nearly as much as they were when they were first invested in. In order to calculate the value of these assets, you’ll need to estimate their resale value, not the amount that was paid for them. This valuation calculation method most often turns out on the lower end, since it does not consider the industry or market that the business is in. In other words, it leaves out what may be most compelling to a potential buyer.

Discounted cash flow

Any potential buyer is interested to see the potential of a company and will want to see that the company will continually produce profits. To value a company’s future profits, it’s important to look back on past financial documents. Has the company been growing at a steady rate? Is the income predictable?
While a company may have had a great quarter, that does not always equate to high value. Flukes happen and buyers are more interested in consistency than huge profit surges.

The “discount rate” is determined by the buyer and considers the monetary value of the time it will take to make up their investment. How much money will it cost the buyer to both acquire and reevaluate the company to their liking? This time is made up for in the discount rate.

Comparison

Comparable business valuation appraisals consider the market that their industry is currently a part of and whether their business is sustainable. If they are a lone wolf in the industry, that could be good or bad. While buyers applaud pioneers in their field if they are successful, many companies without competitors do not have any because the business model simply does not make sense.

If they do have competitors, a buyer will likely look at the value of similar businesses that have sold in order to make a comparable offer. Of course, none of these methods are cut and dry. A proper small business valuation appraisal is based on two things: circumstance and monetary value. In this case, it is important to take all three of these techniques into account.

Banker Valuation’s business valuation software provides highly accurate valuations based on a culmination of all of these factors, including the current business market. This tool makes the job of a banker much easier and will benefit the client/business owner with a highly specific and in-depth valuation.

Jan

31

2017

4 Tips for Adding Value to Your Business Prior to Sale

Jan 31 2017

adding value, sell a company, tipsWhen looking to sell a company, an owner will naturally want to secure the highest price possible. In many cases, like when selling a home, renovations can really help with the price point.

Obviously, a stable, good-looking, well-equipped building is appealing, but looks can only go so far.

If you are looking to add value to your company before selling, you better be willing to put in the work well in advance.

While the results of small business valuations are often predicted or determined based on the recent sale of similar businesses, there are so many things — including risk assessment and earning power — that should go into the calculation.

This is not a quick turnaround project, either. It takes diligence and determination in order to see real, measurable results in small business valuations. Here are a few suggestions to help you add value to your business as you get ready to sell.

1. Build a strong relationship with your customers

Especially when it comes to small businesses, community support goes a long way. Being well-established and reputable among your clientele is key. However, this does not mean that you have to have been in business for a long time, just long enough to make your mark and attract well-received attention.

2. Grow your financial track record

Any company can recognize a business method that works, but it takes skill to grow your company and not remain complacent. If you have a rowing business that obviously has some real potential, then more investors may be interested in purchasing your operation.

3. Secure your intangible assets

While inventory is taken into account for all company valuations, intangible assets, like patents, can be more complicated to appraise. Selling the rights to a patented product or service can be complicated, and involves legal counsel. If you are not willing to sell the rights to your trademarked products, your business valuation appraisal will likely be much lower. After all, your product or service may have been the driving force of your company in the first place.

4. Maintain clean records

If you are looking to sell in the very near future, this may not be possible. In many cases, business owners want to retire and simply hope for the best when it comes to the possibility of being bought by an investor or other company. While a company may be thriving on the outside, sometimes audits or a simple look into company or employee records can uncover something potentially damning.

It is always important to prepare for the future, especially in business. When it comes to conducting small business valuations, too many people end up disappointed with their company’s value.

To prime your business for future prospects, be sure to keep all four of these tips in mind.

Dec

23

2016

3 Reasons Why Proper Business Valuations are Essential

Dec 23 2016

Be prepared when it comes time to valuate a business.Company valuations are not one-size-fits all, but every company needs to go through them eventually. It’s a vital practice that answers a simple, yet not easy-to-answer question: What is this business worth?

Whether you’re a small startup with just two employees or a large international corporation, business valuations are important in a number of situations. Here are three reasons why a proper business valuation is important.

Valuations are needed when seeking investors or capital.

For a startup, it can be difficult to measure company worth. In the early stages, you may not have any capital at all. But small business valuations aren’t just based on revenue; they are also based on potential.

For startups, the primary goal is to find investors that are willing to take a shot on ideas and help it flourish. In order to do this, business owners need to show investors a number of things.

They need to know that the owner of the company has a good track record. Were they previously employed with a reputable company? How did they perform?

Investors also want to see growth within a short period of time. A year and a half is just about the right amount of time to show them what a startup is capable of, and performance needs to be consistent. While huge surges in revenue are celebrated internally, when it comes to investing, these sharks don’t want to take a chance on just anyone.

They will likely compare prospective businesses to competitors as well—what makes one business stand out stand out from another? What kind of potential do they have? That’s what determines value in the early stages.

Valuations are needed when bringing in partners or sharing equity with key employees.

Making deals with potential partners or shareholders can be a nightmare if a business hasn’t undergone a recent valuation. Everyone’s view of value tends to be subjective. Valuing the business makes things much more concrete.

When it comes to shareholders, too often companies avoid confrontation and conflict, and instead depend on a “gentlemen’s agreement” that is not truly representative of the equity at stake.

It’s best for principals to buck up and have those uncomfortable conversations. Start new partnerships on the right foot by conducting valuations.

Valuations are an important seller tool for business owners.

When the time comes to sell, entrepreneurs want to make the most money possible. But aside from the revenue that a company generates, what other valuables does it hold?

When calculating the worth of a business, assets are key variables. The real estate that a company operates from, its inventory, intellectual property, and any equipment that the business needs to operate all need to be factored into any small business valuation.

It may sound complicated, but the reality is that just two things need to be done in order to start determining a business’ worth: determine why it needs a valuation and assemble the necessary paperwork, tools, and information.

To learn more about seeking the right valuation options for every unique situation, consult Banker Valuation, or view our video tutorial to see our valuation software in action.

Nov

18

2016

When It Comes to Business Valuation, Does Company Size Matter?

Nov 18 2016

Does Company Size Matter?

When conducting a company valuation, there are a number of factors that influence the company’s ultimate worth. A larger sized company, for example, is often predicted to be more profitable, and therefore have a higher value.

While this is generally a good rule of thumb, business values are not always absolute. Two key elements go into determining business value: how you measure business value and under which circumstances. While companies with higher sales seem to be more profitable, the fact is that large and small companies operate on different scales.

Company Profits

The average person perceives data in a very skewed manner. A Reason-Rupe/Yahoo! survey, found that American citizens believe the average profit margins of U.S. companies are around 36%. Walmart, one of the nation’s largest companies, has a profit margin of only 3%, while those of most other large businesses are about 7%.

If a large company that earns more than $5 million in revenues has an average profit margin of 7%, but the company that earns less than $1 million has a 15% profit margin, one could say that the smaller company is more successful.

The income of a larger company is certainly more steady and predictable, but small business valuations may prove to demonstrate higher returns and growth than those of large companies.

Company Risks

Smaller companies have a far higher risk. Investors expect a much greater return from small companies. However, large companies can get away with smaller returns, as they tend to be more consistent.

This is partly due to the fact that large companies like Walmart have a vast amount of resources and are diversified in their products, and can therefore play a profitable part in a number of markets. Small companies often cater to niche markets, and don’t have as many opportunities to branch out.

Discount Rates

The discount rate is one of the key indicators of company value during a business valuation appraisal. When calculating the discount rate, the greatest gift is a low premium. Because the company size premium is in the denominator of the business valuation calculation, the business value is lower with a high premium.

Smaller companies have inherently high premiums due to their higher level of risk, which can severely impact a business valuation appraisal. If two companies operate within the same business sector and each earn $1 million in capitalized earnings, the large company’s value will still be higher.

Oct

14

2016

Risk Factors to Assess During a Business Valuation

Oct 14 2016

Assessing Risk in Business ValuationWhen you invest in something, it’s more than likely because you expect to see a return. This is no different when acquiring a new business, however, investments come with inherent risks, and that’s especially true when taking over a new company.

You’ve no doubt heard the phrase, “No risk, no reward,” but only the savviest investors actually know how to properly measure risk, and how much risk is too much. If you underestimate the dangers, you could be setting yourself up for failure. In the same way, unless you have a realistic understanding of a company’s risk, you won’t be able to maximize your return on investment.

This is why an accurate risk assessment is so absolutely crucial during business valuations. There are several factors that need to be accounted for that affect a company’s risk profile, including:

Labor

Are there enough people to fill the jobs? Are potential employees hard to find? What are the skill and degree requirements for doing these jobs and can they be adjusted? Technical companies often hire more specialized individuals, who are part of a small pool in their fields. With few options, it may be difficult to grow the company. Of course, that’s just one labor issue to consider.

You may also want to account for longtime or key employees due for a salary increase, as well as determining if the business brings significant liability. Are on-site accidents and injuries commonplace, like in construction? Has sufficient employee training been implemented? It is also important to ask for an accident history report for any company vehicles.

Management

What are the age demographics of the management staff? If they are nearing retirement age, it is possible that they may retire when ownership changes. Will the new owner need to hire new management, or will they promote from within?

How is management’s performance? Has the company outgrown its managers? Do they possess the skill sets to help take the company to a higher level?

Risk management for small company valuations can often be difficult, as many small businesses are family-owned. Are the managers related to the current owner, and will they leave with new ownership? Will there be any managers left after the deal concludes?

Financial Strength

Is the company financially stable, or are they fudging their numbers? While there are many questions that one should ask during risk assessment, ultimately, risk is quantified by two factors: discount rate and capitalization rate. Discount rate is the rate of return that justifies the business acquisition. In other words, the investment made must be lesser than the amount received. The company will need three to five years worth of income statements and balance sheets to perform the business valuation.

Capitalization rate is the discount rate adjusted for annual growth. This projection gives the buyer a better idea of how the business will perform long-term. While a company may be stable now, will their performance carry over in the coming months, or will they dip into the red?
Are the business’ suppliers diverse? If they only receive shipments from one company, that company can raise prices at any time. With more suppliers, sales become more competitive.

Facilities

How much longer does the lease extend? Will it be renewed? Is the business likely to outgrow its space?

Diversity of Accounts

Like suppliers, a company should have a wide range of accounts. If one account is responsible for a large portion of revenue, then the company could easily go out of business. If the company has larger accounts, they should be under several-year contracts.

Competitive Space

Is this business an innovator or pioneer, or do they have many competitors? It’s also important to understand how emerging technology will affect the business.

Predictability

Have the company’s financial numbers been consistent? If not, the new owner won’t be able to understand what they should expect in the future.

Marketability

What is the company’s purpose and will they remain relevant? Would other buyers be interested? Are the customers loyal or are they more likely going to move on when something else steps onto the market?

Future Outlook

The purpose of business valuation services are to analyze the financial prospects of the company. If the valuation results indicate instability or uncertainty ahead, that should raise a major red flag. Public attitude, new technology and developments, as well as policy can all affect a business’ future. Be sure to consider all of these factors.

Each of these risk factors must be evaluated and put under strict scrutiny in order to assess the benefits of a particular business acquisition. A small business valuation can help investors determine the value of a business and, considering the risk factors mentioned above, can paint a clear picture of your investment opportunities. Start your free trial of Banker Valuation today and get the tools you need to run a small business valuation in just minutes.

Sep

26

2016

6 Key Items to Consider when Determining Inventory Value for a Retail Business

Sep 26 2016

Determining Inventory Value for a Retail Buinsess

Knowing the value of a product is crucial to selling the product. However, the value of a business is also determined by the value of the inventory.

Purchasing a business does not always mean simply taking over a building, but also acquiring some of the assets that the business holds. This means that in order to sell a business at fair value, all inventory must be accounted for and appraised.

Main street businesses may wonder why they should have a business valuation. While the process will provide a potential buyer with a price tag, it will also give insight to the potential earning power of the business, as well as assess the risks associated with it. This might be necessary before applying for a loan, but it also provides valuable data when planning for the years ahead.

Here are some things to keep in mind when calculating inventory during a small business valuation:

1. First, the buyer and seller must agree on an inventory model. For bulk products, there are two small business valuation methods:

  • FIFO (first in, first out), meaning that the value of each item is based on the invoice recording the purchase of the first unit of inventory.
  • LIFO (last in, first out), means that the costs of the most recently acquired unit of inventory determines the cost of each item.

When prices are rising, it is most effective to use LIFO, because the cost of inventory charged to expense is high, creating the smallest amount of taxable income.

2. The final count and valuation of inventory should be done at the close of the sale, when the amount of inventory has finalized. During the purchase process, inventory usually fluctuates due to ongoing business by the seller. Before the final value is established, an anticipated value of inventory should be discussed between the seller and buyer in order to avoid disagreement. This also assures the buyer that there will be sufficient inventory for operations while they take over the business.

3. Only items that can be sold to or used to service a client can be considered inventory. Machines, equipment, and furniture are considered hard assets and may not qualify.

4. A request for physical count of inventory is usually recommended for the buyer.

5. The demand and condition of the items can be taken into account during the valuation. Things you don’t want to sell, things that are no longer in demand, or items that don’t align with your consumer demographics can be excluded from the appraisal.

6. If the buyer and seller conduct the inventory count together, the seller is able to explain some business practices. This is valuable if the buyer and seller are on friendly terms. If not, or if the process is simply too time consuming, an independent agency can be hired to count inventory.

A company valuation is important in order to determine if the price tag set by the seller is fair. Want to know how much a business is valued at? Start your free trial of Banker Valuation today and run a small business valuation in just minutes.