Business Appraisal Services in Houston
Wiley Financial conducts business appraisal in Houston, offering services to hundreds of clients. We strive to give an accurate company value, so you can identify areas to improve, increasing your company’s value.
Business Appraisal Definition
Business appraisal is the general process of determining a company’s or asset’s value. An appraiser can appraise equipment, private companies, alternative assets, and more. An appraiser undergoes thorough training before offering their services. Governing institutions require them to pass several tests and commit to continual study.
There are many reasons why one might need an appraisal. It may range from personal to legal purposes. The common ground is determining an asset’s value. Here are some of the most common reasons.
Reasons for Business Appraisal
Selling a Business
One of the chief reasons people in Houston conduct appraisals is to determine the selling price of a company. An appraisal enables the business owner to identify areas they can improve, increasing the company’s value. Besides, it helps one negotiate a higher selling price.
If you want your business to be successful even after you are gone, you need regular business appraisals. Having the value of your company in mind, you can develop a pass-over strategy, ensuring operations run smoothly. You can also pinpoint areas for the successor that might increase its value.
Accessing more Funding
Investors want to see an up-to-date appraisal report before investing in a company. They want to see historical performance and future cash flow projections as it allows them to gauge whether the company will be profitable or not. With appraisal reports, you’ll be able to attract several investors.
For Acquisitions and Mergers
If a company approaches you for a merger, they’ll want to see how your business has been performing. It will enable them to gauge whether it is worth the salt.
The business appraisal helps you show them past performance and future growth projections. You can facilitate the merger at a higher rate since you have the data to back up your claims.
Managing a Business
Business appraisal in Houston enables you to manage your business better. As mentioned, regular appraisals will identify the strengths and weaknesses of your business.
As such, you can develop strategies to mitigate risks. It translates to fewer blind spots and more growth opportunities. It also lets you determine whether you need to overhaul the management structure.
Defending the Company’s Value
Situations such as divorce may force you to defend the worth of your business. Also, should there be a disagreement between owners or shareholders, the value of your business will play a critical role if a buyout is imminent. An appraisal can help you in a sensitive situation, ensuring the company’s value is left intact.
For ESOP purposes
ESOP, or employee stock ownership plan, allows employees to buy the company’s shares at a preset price. It has numerous benefits, such as tax advantages and liquidity. To facilitate an ESOP, you need regular business appraisals.
Types of business appraisals
Appraising equipment in Houston involves three estimates, namely:
Fair Market Value (FMV)
Fair market value is the price at which both parties (seller and buyer) agree. For FMV to take effect, it should meet the following conditions:
- Both parties should have ample time to execute the transaction.
- The parties shouldn’t be under any pressure to complete the transaction.
- Both parties should have prior knowledge about the asset or business.
- Each party should cater to their needs.
The FMV estimate differs from the market value since it does not consider the current asset price. It is used in legal situations and for insurance and taxation purposes.
Orderly Liquidation Value (OLV)
OLV is the gross amount an asset would fetch if a seller is given time to find one or two buyers. The seller is often given a short time, and location constraints limit them. It means the seller is in control of the process, unlike forced liquidation, where a financial institution controls the process.
Forced Liquidation Value (FLV)
FLV is the involuntary sale of assets. It is often a reaction to unforeseen circumstances such as the death of a business owner or legal orders. A financial institution such as a bank will control the process, meaning they can sell to whomever and at whatever price fits them.
If you want to sell a restaurant in Houston, you’ll need an appraisal to know its worth. At Wiley Financial, we appraise restaurants and bars within Houston using the following approaches:
The income approach determines how much income a restaurant will generate in the future. A higher projection means a higher valuation. The two primary methods are discounted cash flow and multiple discretionary earnings. Most appraisers will use the multiple method since it is well-suited for small businesses.
This approach values a restaurant based on its worth in an open market. For example, the value of a subject restaurant can be equal to that of a recently sold similar restaurant. Appraisers will, however, make adjustments on multiples to match those of the subject restaurant. Behemoth restaurant’s value will depend on the stock market behavior.
This approach bases a company’s worth on subtracting its liabilities from total assets. It is the simplest method since it is easy to measure the worth of tangible assets. Its downside, it does not give the exact value of the company.
So, what should an ideal appraiser in Houston possess? Let’s find out.
First, consider if they have enough appraisers to perform the task. Do they give regular updates during the appraisal process? Do they explain their strategy to a client?
An ideal appraisal company will strive to provide weekly, if not daily, updates. They also offer follow-up services to ensure the appraisal meets your needs.
You might consider the trustworthiness of a subject company. Ensure they deliver what they promise to deliver. Also, ensure they provide generous assistance where need be. An excellent starting point is public reviews. See what past clients say about the company.
Also, consider how long it takes the company to perform an appraisal.
Credentials show the professionalism of an appraiser. As you’d guess, appraisers have different accreditations, with the most common being:
Accredited Senior Appraiser (ASA)
ASA is the highest accreditation in the industry. The American Society of Appraisers awards the credentials. An appraiser should complete over 120 hours and pass tests at all levels. To qualify for the ASA accreditation, you must have over five years of appraising experience.
The candidate should submit at least two valuations for peer review. Once an appraiser receives the accreditation, they are to renew it after five years, with evidence of continual learning.
Chartered Financial Analyst (CFA)
The CFA institute sponsors this accreditation. It is rigorous, accepting other financial consultants such as portfolio managers, investment bankers, and securities analysts. You must pass a full-day exam every three to four years to qualify.
Accredited in Business Valuation (ABV)
The American Institute of Certified Public Accountants (AICPA) sponsors the credential. To qualify:
- You need to have a CPA license.
- Conduct at least ten valuation assignments.
- Complete 120 hours of study after every three years.
- Pass the ABV exam.
- Have over five years of experience in business valuation.
Certified Valuation Analyst (CVA)
To qualify for CVA accreditation, one must be a CPA practitioner, pass the CVA exam, complete CPE’s 60 hours of coursework every three years, and be an experienced appraiser.
Cost is also a crucial aspect you need to consider. You don’t have to break the bank for business appraisal. Some cheaper appraisers offer quality services. Ensure their charges are transparent.
What to consider During a Business Appraisal
Risk is the measure of something happening or not happening. You can compare your business against a guideline company to measure risk. And since you cannot measure risk without underlying economic drivers, you need to understand a business’s assets, liabilities, stakeholders, and others.
Once you identify the subject business risks, you can compare them against the guideline company. It will help an appraiser determine the value of a business.
Business growth consists of cash flows, assets, and revenues. It can also include employees, customers, and products. Considering these aspects can significantly bolster the value of a company.
A company’s earnings include cash flow, dividends, net income, and others. They are the primary benefits of running a business. Changes in earnings can show historical successes and failures.
It enables the appraiser to project future cash flows, giving an accurate valuation. Call or email us today for a business appraisal in Houston.