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Terry Flanagan worked closely with me to value my target practice.
I was comfortable with the deal and felt I was in good hands.
S. Nebelsi, M.D.
Terry kept me informed along the way and the valuation report made my practice transition much easier than I expected.
R. Thabes, M.D.
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Why a Valuation?
At some time, most business owners will need to determine the value of a business for one of these reasons:
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Selling
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Merger or acquisition
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Buying
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Partnership
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Business plan development |
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Bank loans
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Estate planning
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All business owners face “key” decisions that require them to make crucial decisions. Every owner’s situation is unique. Those who make the right choices prosper. Owners that make the wrong choices often face shattering consequences. The difference is information. Owners with accurate information make better decisions. The single most important piece of information of any business is…what is it worth?
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Exiting the Business – At some point, owners will decide they are ready to leave the business. A key employee, or a competitor might buy it, or perhaps a son or daughter will take it over.
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If owner underestimates the value. Owners who think their business is worth $X when it is actually worth $2X are leaving money on the table. Maybe they want to, but they should do it by choice, not by accident. Inter-family transfers are especially dangerous – there are IRS issues, as well as ‘Mom and Dad gave you more than me’ issues.
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If owner overestimates the value. Owners who think their business is worth $X when it is actually worth $½X will have troubles. They risk killing a sale by demanding too high a price. Worse, such owners often drive potential buyers into the arms of competitors.
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Buy/Sell Agreements – Imagine two 50/50 owners and a signed buy/sell agreement drawn when they started the business and setting the value at $X amount. Imagine the company has grown and is now worth $10X but the buy/sell agreement was never updated.
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If owner underestimates the value. The first owner to leave (or the owner’s heirs) would get ½ of the original $X when they should have gotten $5X.
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If the owners overestimate the value. The first owner to leave (or his heirs) gets most of the value of the company. The remaining owner’s value – and future security – is devastated.
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Retirement – At some point, the business owner will consider retirement. In many cases, the business is the largest investment. How big is the nest-egg?
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If owner underestimates the value. Owners in this category are lucky: there is no downside to having more money than you expected! (But see Estate Taxes below.)
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If owner overestimates the value. If you think your business is worth $X, you make certain plans. When the time comes to retire and you discover it is worth only $½X, your plans are going to change – dramatically and for the worse.
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Estate Taxes – Only two things in life are certain: death and taxes. For most owners, their business is their single largest asset. It is impossible to plan for estate tax obligations without knowing the business' value.
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If owner underestimates the value. You think your business is worth $X and plan accordingly. But when you leave the scene the IRS decides your business is worth $5X – and your heirs must sell the company fast to pay the estate tax.
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If owner overestimates the value. There is no downside (from an estate tax perspective) if you think your business is worth $X when it is really worth $½X.
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Professional Practices – The professional practice differs from other business types and presents unique challenges. The value of a professional practice is generally the sum of the physical assets and the intangible assets – which are typically the greatest contribution to the practice value. The intangible assets of a professional practice are called ‘goodwill’ and can be difficult to value.
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If the professional underestimates the value. Owners who think their practice is worth $X when it is actually worth $2X do not receive value for years of building their reputation and systems.
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If the professional overestimates the value. Owners who think their practice is worth $X when it is actually worth $1⁄2X will create a difficult situation for themselves. They overestimate how much will be available for retirement. They also risk killing the sale of their practice by demanding too high a price.
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A valuation report provides critical information to all parties when a change in your business is being contemplated. During a change in ownership, partnership leading to a buy-in, re-financing, financial and estate planning, or in a divorce settlement, a Circumference valuation report will ensure that the correct standard and premise of value is used for all transactions.
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Levels of Service
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| Letter Appraisal Report: $1,250 - $2,500 |
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This level of report will establish a limited opinion of value for:
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Purchase a small business;
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Establish a value for buy/sell agreement;
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Retirement Planning; and
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Help with future business planning.
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| Professional Practice Valuation: $1,250 - $2,500 |
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This level report gives you the information you will need to:
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Buy or sell a practice;
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Evaluate relevant information such as the community demographics, efficiency of staff operations and any contracts which would be part of the sales transaction;
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Have an approximate value of the practice;
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Use for SBA loan purposes;
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Document the financial condition of the practice;
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Document the history of cash flow;
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Document the history of profitability;
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Project future earning potential;
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Determine financial trends;
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Write a comprehensive business plan; and
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Negotiate a fair price.
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| Comprehensive Valuation Report: $3,000 - $5,000 |
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This level of report will establish a comprehensive opinion of value for:
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Purchase of a small or low middle market company. (Up to $15 million is sales);
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Estate Tax purposes;
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Gift Tax Purposes:
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Compares the current market position and financial information with industry standards;
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Establish a level of value for divorce or other situations likely to be litigated;
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Other applications requiring detailed knowledge of an entity; and
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Meets IRS Revenue Ruling 59-60 standards.
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About Us•Services•FAQs•Resources•Contact Us•Home
Circumference Valuations•P.O. Box 246•Palos Park, IL 60464•Toll Free (877) 988-0911•Fax (708) 361-3220
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