Appraisal & Valuation
When it's important to know how much your company is worth
From startup to ownership transfer, situations continually arise in which it's important to know how much your company is worth. These situations follow the life cycle of the company:
Building Value Preserving Value Converting Value
Whatever the reason for valuing your company, you should ensure that the assignment is in the hands of an expert. Not just a "numbers" person, but a professional with extensive consulting experience in helping owner/managers maximize value, as well as many years of service as an expert witness in valuation.
Senior Consultant Steven D. Popell is a Certified Management Consultant (CMC). This certification is conferred by the Institute of Management Consultants, and signifies both technical competence (education, experience, case studies, references and interview) and adherence to a strict code of ethics (written examination).
Mr. Popell has been a general management consultant, specializing in small companies (to $25 million in annual sales) since 1970. He has pioneered the use of mediation in the valuation of small companies and professional firms in the divorce context in the San Francisco Bay Area. He has published extensively in leading professional journals on various aspects of business management and valuation.
Expert Witness in Appraisal and Valuation
Mr. Popell first testified on business valuation in 1974. He has testified numerous times over the past 25 years in superior and family court. Along with two colleagues, he presented a highly acclaimed workshop entitled "Excel as an Expert Witness" for the 1997 Western Confab of the Institute of Management Consultants. He will be leading a similar workshop at the 1999 Western Confab in conjunction with one local colleague and two from Texas.
Building Value
From startup to maturity, an accurate and professional valuation can contribute to building value. A startup valuation (for purposes of raising equity, partnering or providing key employee incentives) relies primarily on future projections of sales and earnings. These, in turn, reflect the size of the potential market, the quality and uniqueness of the proposed product or service and the track record of the management group. For a company with at least a year or two of history, actual earnings and financial condition play a key role.
A buy-sell agreement is a must in any company with more than one shareholder or partner. Otherwise, a voluntary or involuntary termination or a partnership breakup can leave the unsavory choices of an adversarial repurchase or a strictly self-interested (or, even, hostile) stockholder or partner. In addition to incorporating a stated current value, a buy-sell agreement should provide the mechanism for future valuation by mandating either annual reappraisal or a binding valuation formula.
In the context of acquisition of another company, there are actually two valuations - one that the buyer performs on the seller and the other way around. The acquiring company can grow faster by learning how to maximize its value in the acquisition marketplace and, at the same time, see through the inevitable puffery on the seller side. A qualified appraisal expert can be invaluable on both sides of this equation.
Preserving Value
A professional appraisal is essential in any situation that threatens a company's value. Chief among these are divorce, partnership breakup, unfriendly repurchase of stock and any form of civil litigation. Since lawyers will almost certainly be involved, expert witness experience on the part of the appraiser can be a major plus.
Ethical expert testimony should function like an oral friend-of-the-court brief, irrespective of who is paying the fee. Unfortunately, many expert witnesses function as advocates for their clients. Therefore, it is critical that you have an ethical expert on your legal team who can help identify and debunk biased testimony, and assist the court to come to an equitable solution.
Another important element of preserving company value relates to family businesses. For a family business to survive into the next generation, management must build an organization that is based on ability and attitude, not simply blood relationships. A professional valuation process can play an important role in building this type of organization by educating family members about what creates value in a business and what destroys it. If the appraiser has considerable general management consulting experience, s/he is in a far stronger position to make these lessons stick.
Converting Value
Perhaps the most critical need for professional valuation occurs when it's time to convert all the years of hard work and sacrifice into liquid assets. To get the most for your investment of time, energy and money, you must develop a coherent and viable exit strategy. The process for developing this strategy should begin at least three-to-five years prior to retirement or the sale of the company, and should include (and be a part of) the estate plan. Key questions to address would include:
- How much do I want for this company when I retire?
- How much of it will I require in cash?
- How does the value today compare with what I want it to be?
- What types of individuals or companies are likely buyers?
- What types of individuals or companies would get more from buying my company that simply the earnings it can provide on a stand-alone basis?
- What has to happen in the next few years for the desired value to materialize?
- Do I want to work for the buyer and, if so, for how long and on what basis?
- What important non-economic considerations should I take into account, such as family issues or job security for current key employees?
- Whom should I take into my confidence about my plans?
- Are my spouse and I on the same page?
A well thought out exit strategy can mean the difference between achievement of key personal, family and business objectives and the enduring satisfaction that you "finished it right."
- Steven D. Popell has published the following articles in the field of appraisal and valuation:
- "Mediating the Value of Small Businesses and Professional Firms", Community Property Journal, Winter 1983
- "Case Study Illustrates a Mediation Approach to Valuing the Small Professional Firm", Community Property Journal, Winter 1984
- "How to Use a Neutral Business Appraiser to Directly Mediate the Value of a Small Business or Professional Firm", Family Law News (official publication of the State Bar of California, Family Law Section), Fall, 1993
- "Reasonable Compensation" for the Sole Practitioner", Family Law News, Winter 1995
- "Putting and End to Double Dipping", Family Law News, Winter 1996
- "Alternatives to Double Dipping", with Jerald Udinsky, Ph.D., ASA, Family Law News, Summer 1997
Popell, Incorporated
Tel:(650) 843-0323
Fax:(650) 843-0310
Tel:(650) 949-2650
Fax:(650) 949-3531
Email: spopell@exitrak.com
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