As a business owner, obtaining a business valuation, or appraisal of the company’s worth, is perhaps one of the most important things you can do to increase its future value and gain a competitive edge. By going through the valuation process, you will come to understand the drivers that both positively and negatively impact value and can make any necessary adjustments before it is too late.

There are a number of reasons why a business owner might want to obtain a business valuation, including:

• Prepare for an acquisition or sale
• Plan for retirement
• Succession planning
• Assist with estate planning/gift tax filings
• Buy out a shareholder
• Plan for a divorce
• Implement an Employee Stock Ownership Plan (ESOP)
• Sell shares of owner stock to management or implement a management buyout (MBO)
• Implement an equity incentive plan for key managers
• Curiosity

Any strategic business decision requires an objective, detailed business valuation. The process of obtaining a fair and accurate valuation is complicated and often fraught with assumptions and differences of opinion, which is why unbiased analysis from a reputable financial advisory company is necessary to ensure the value is based on real data and accurate projections, not emotion or opinion. There isn’t one particular formula used to obtain a business valuation because it is not only based on the company’s profitability, but also its efficiency, products, customer base, economic conditions, expected growth and a number of other factors.

At Prairie Capital Advisors, Inc. the process of performing a business valuation begins with a detailed analysis of your company’s operations. There are two main approaches to pricing a business:

• Income valuation approach: Analyzes your company’s revenue, estimates its future economic returns and “converts” those returns into a value estimate.
• Market comparable approach: Determines the value of a company by comparing it to similar firms in the marketplace and creating valuation multiples, which are then adjusted against the earnings of your company.

How do you determine which approach best suits your company? It depends on your company's level of uniqueness and stability in the marketplace. Companies with a distinctive business model, but who have detailed income projections, naturally lend themselves to the income valuation approach. Companies with similar organizational structures as businesses that have either been sold, or whose stocks have active markets, are better off using the market comparable approach. Most companies, however, utilize a combination of both approaches.

At Prairie Capital Advisors, we always attempt to execute both approaches on every assignment, taking into consideration the industry the company operates in, how mature the company is and the risk levels. We also carefully analyze the general economic climate as well as trends in your industry – both good and bad – and customize the best approach for you. By partnering with us, you will not only know what your company is worth now, but also how to best maximize its value in the future.