If you don’t know, it’s a good idea to find out. Because navigating business is like navigating geography you can’t get where you want to go if you don’t know where you are!
The process for conducting a business valuation depends in large part on what kind of company is being valued. Companies that issue stock options on a regular basis are required by the IRS to secure a valuation at least once per year. Closely held private corporations may commission a valuation every three-to-five years in order to monitor the evolving value of the corporate asset. Still others conduct less frequent event-based valuations, for example when an owner decides to retire or to sell to diversify wealth.
Regardless of the timing for initiating a business valuation, a current and accurate valuation provides a numbers-based view that gives management the knowledge to make necessary strategic decisions and gives owners the tools to determine how to continue to improve the value of the company.
While financial information is critical for all businesses, far too often management fundamentally neglects a comprehensive valuation of the going concern, rationalizing that it takes too much time and costs too much money.
According to one Tobin & Company-client CEO however, the benefits vastly outweigh the costs. Your valuation allowed us to maintain the valuation of our company with our investors during the tenuous sub-prime mortgage recession, he said. In our case it was worth much more than we paid!
The Devil is in the Details
At Tobin & Company we begin the valuation process by assessing current and projected economic conditions, micro and macro metrics of the business and the goals that management has identified as critical to business success. Next, we apply a variety of valuation methods to clarify an enterprise-view of value. This approach requires multiple evaluation criteria including discounted cash flow, comparable company transactions and precedent transactions, among others.
Our goal is always to deliver the most accurate, defensible business valuation so management can move forward with confidence. On occasion, our approach conflicts with management expectations, not in precision and thoroughness, but in results. Exhaustive detail, or as some CEOs call it, â€œexamining the lint in my navel, is geared toward an honest, accurate business valuation that is independent of the wishes of management but uniformly fair for the business and the market. TOBIN’S process is governed by math, statistics, facts and logic. As we move forward, the process might be described as artful, effectuating how the model comes together with the benefit of vast experience and some intuition to yield an enlightened well-reasoned answer.
Generally, the process takes between three and five weeks depending on access to management and availability of data.
Tobin & Company is an investment banking firm. Investment banking firms are different from valuation firms and accounting firms. As such, we take a global perspective on business valuation. We emphasize pricing and marketability in our valuations, and we routinely help our clients sell themselves and/or buy other companies. Neither valuation firms nor accounting firms do this.
We are also different from other investment banks. While we have Wall Street experience directly from entities such as Goldman, Sachs & Company and Salomon Brothers Inc, we are smaller, without the overhead and demands of larger firms. In fact, we do fairness opinions for small public companies much more efficiently and economically than the larger investment banks.
We have a niche in the lower-middle market because we bring savvy valuation skills to the table that our competitors don’t have. We give each client the attention and time needed to get the most accurate result, and I would argue that we have a greater commitment because we are smaller.
If you are a CEO, board member, investor, entrepreneur, or confidant of one, feel free to pass our name along. Tobin & Company just might be able to help.