Do You Know What Your Business Is Worth? You Should. —New York Times

Posted date: February 05, 2013 In: QuickPress, Valuation/Appraisal

Few Business Owners Seem to Even Know How to Make a Good Guess at What Their Business is Worth. NY Times Introduces Technology to Help—and Certified Advisers Provide Extra Value.

Mark Cohen, at The New York Times Small Business Guide, reports: “At 53, Joe Ritz is old enough to remember a time when many of the classic cars that now pull into his specialized repair shop were new. “It’s one field where it pays to be a senior citizen,” he said.

It’s Critical for a Business Owner to Know the Value of His Business; Here are Tips on Technology, Advisors, and Process

Based in Tempe, Ariz., near the site of the Barrett-Jackson car auctions and a hotbed of the collectible car scene, Mr. Ritz may know all there is to know about American muscle cars and multicarburetor European exotics.

What he did not know when he first tried to buy his own repair shop several years ago was how difficult it would be to pin down shop owners on the actual value of their businesses. Mr. Cohen explains more:

Few owners seemed even to know how to make a good guess. “One guy I talked to about selling said the business had to be worth $1 million, because that’s what he needed to retire on,” Mr. Ritz said. “Another was like, ‘Well, let me see, my alimony is $4,500 a month. … ’ It was ridiculous. I finally just gave up and decided to start my own shop.”

Today, that shop, the Sports and Collector Car Center, has four mechanics working on roughly 20 cars a month, and Mr. Ritz can tell you exactly what he thinks the business is worth. All he has to do is check the latest figure on a cloud-based computer program that synchronizes with his regular accounting software to give him a real-time estimate.

Every time another ’57 Morgan wheels into his lot, every time he orders new parts, every time a similar garage is sold across town, a new value flashes on Mr. Ritz’s computer screen and a bar chart notches the progress toward his five-year goal. “We’re not for sale,” he said, “but now, at least, I’m not guessing anymore what my biggest asset is worth.”

Based on anecdotal evidence from professionals in the mergers and acquisitions industry, Mr. Ritz seems to be in the minority. With the day-to-day demands of running their businesses, most owners put off getting a valuation until a sale is imminent. But some are starting to treat the act of valuing their business as an integral part of running it.

Mr. Cohen introduces a new valuation product called BodeTree:

“Everyone likes to think they’re building something that they can sell someday, but unless you focus on it, you don’t know if you really are,” said Chris Myers, the 27-year-old chief executive of BodeTree, a start-up that created the software used by the Sports and Collector Car Center.

The BodeTree valuation service, one application in a financial analysis platform that costs about $50 a month (or $500 a year), has attracted 4,000 subscribers since its introduction last April, and bills itself as “the finance tool for people who hate finance.”

Cohen adds: “There are other online valuation calculators, including BizEquity and uValue, an iPhone app developed by Aswath Damodaran, a valuations expert at the Stern School of Business at New York University.”

However, the Times article includes caveats:

“I can’t speak for all the online tools, but I tried a couple of them and they didn’t come up with the same figure I did on a company I was valuing,” said Barbara Taylor, co-founder of Synergy Business Services, a business brokerage firm in Rogers, Ark., and a former contributor to The New York Times’s You’re the Boss blog. “I think there’s something to be said for having a real person trained at valuations come in and get to know your business before running the numbers. There’s an art to doing a valuation.”

Cohen adds: “Business brokers, who routinely run valuations as part of marketing a company for sale, are another option. While their reports are not as detailed as the certified appraisals required by some buyers and in some legal proceedings, they tend to be more detailed than the reports from online services — and . . . they [sometimes] cost a fraction of what a certified appraiser at a large public accounting firm will usually charge.

Cohen doesn’t mention ValuSource. ValuSource is the first and oldest business valuation software, dating back some 20+ years; you can read about Valusource history and management here; the IRS has actually on occasion used ValuSource technology to check and confirm occasional proposed business valuations.

ValuSource is a bit more expensive than cheaper valuation products that rely on rules of thumb, anecdotes, and strictly regional comparables; but that said, all the data I’ve seen shows ValuSource owns some 90% of all market share for valuators who use software technology instead of doing valuations by building their own models in Microsoft Excel. Which is to say: The majority of top, certified valuators still use Excel manually.

The biggest obstacle to technology growth in the CPA field?

It’s simply that many CPAs prefer to use Excel spreadsheets. They evelop formulas and patterns themselves. ValuSource has increasingly grown as professional Certified Valuation Analysts (CVAs), M&A professional, business brokers, and others discover how much defensible data from a very wide range of databases ValuSource offers. How quckly multiple data scenarios can be examined, analyzed, and re-considered with quick “What-If” formulas. And lots more.

But the key and very legitimate point of the Times’ article is: Most business owners have no idea what the value of their business is worth.

And there are a plethora of tools out there to help figure it out.

Look into them.

National Association of Certified Valuators and Analysts

The National Association of Certified Valuators and Analysts (NACVA) supports the users of business and intangible asset valuation services and financial forensic services, including damages determinations of all kinds and fraud detection and prevention, by training and certifying financial professionals in these disciplines.

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