How To Value Your Business

Why You Should Care How Much Your Company is Worth?

For business owners, CEOs and board members, knowing the valuation of the business, and understanding the key factors that constitute that value, is essential for effective management. Businesses should be valued every 24 months, at a minimum. Why? Knowledge.

Knowledge is power. Knowledge is confidence. And knowledge affords flexibility. Accurate knowledge delivers insight into company assets, a complete understanding of market value and enables adroit bargaining power when opportunities arise.

Whether you are an owner of a private business, a CEO of a public company or a stakeholder in any business otherwise, knowing, rather that guessing, gives you an immense advantage.

Where to Turn for a Business Valuation? Very Simply – Tobin & Company! We’ve valued business for 22 years. We know what to look for and where to look. We educate our clients, so they gain a complete understanding about how our processes work. With Tobin there are no secrets, no hidden agendas, and no bull. As we execute your valuation, we want you to be involved every step of the way.

Three Starting Points Used by Tobin & Company

Three common approaches are used to determine the value of a company but, individually, each has its pitfalls.

1) Discounted Cash Flow Analysis – This is the oldest and most intuitive form of valuation. It involves analyzing cash flows of a business, projecting out future cash flows based on historical performance and other hard metrics and then discounting the incremental earnings to present value terms.

2) Public Comparables Analysis (Comparables are used in valuations where a recently sold asset is used to determine the value of a similar asset.) – This approach involves analyzing the value of similarly publicly-traded companies to determine a comparable value for a separate entity, regardless of whether the company is public or private. Every company is unique, so despite the price-per-share of similarly-sized publicly traded firms in similar industries, this approach doesn’t provide a complete assessment of value.

3) Transaction Comparables Analysis – As with public comparables, the transaction comparables approach analyzes values of similar private companies. While an approximate value of public companies is reported on stock exchanges daily for the world to see, there is no such value measure for private companies. However, values of similar private companies are available when their sale is reported at closing, thus providing a relative benchmark for valuation.

Sound Valuations Begin with Knowing the Company

To thoroughly know a business, an investment banker needs to perform comprehensive due diligence. This includes all details about the company, such as: products sold, income produced by each product and/or product line, market participation, key management background, critical technical personnel expertise and background, profiles of current customers, prospects for new customers, quality control processes, reputation, prospects for growth, debt, liabilities, among multiple other critical facts. Often due diligence includes interviews with key management and visits to facilities which often reveal qualities that influence value.

“Garbage In Garbage Out”

All businesses need the most accurate valuation possible. Otherwise, why go through the process?

Financial precision is essential to arrive at a defensible, valid valuation. Some firms that don’t specialize in valuations, or conduct valuations regularly, stop with financial statements and one of the three approaches above to arrive at a rough estimate. Granted, that will yield an “valuation” quickly, but not one that carries a high degree of confidence backed by a transparent process.

Tobin & Company applies a comprehensive model using all three traditional valuation approaches. Our precision fosters accuracy to the benefit of the entity.

Valuation Is Actually a Form of Art

Once the cumulative data of all three analyses (i.e., Discounted Cash Flow Analysis, Public Comps, Private Comps) are completed and the scientific side is accurate, the process moves to the next stage, which combines scientific logic with deductive reasoning. TOBIN calls this “the art of valuation.”

Because numerous factors, beyond the numbers, impact the value of a business, Tobin identifies inconsistencies in the mathematical data and then seeks to determine explanations beyond the three analytical approaches to, more accurately, assign a firm’s value.

As an example, what if one of the analyses varies wildly from the other two? What external market forces are driving that difference? Why is that external factor either increasing or decreasing the valuation?

Until these questions are answered there will remain unidentified variables in the final valuation, reducing accuracy and potentially downgrading a company’s value.

Proof is in the Process

Ultimately there’s nothing magical about conducting a business valuation unless you don’t know what to look for or where to look. Financials are important, but perhaps the most important part of producing an accurate business valuation is attitude – understanding what you don’t know and digging deep to find the answers.

Tobin & Company has successfully been doing valuations for 22 years. We realize every business is different and we go to great lengths to identify the value of those differences. We strictly guard against the trap some accountants and investment bankers fall into – believing they know the value of an entity before they do the work. Our valuations aren’t assigned, until we’ve proven to ourselves that our answer is correct.

Financial Model and Calculations

Each valuation engagement utilizes TOBIN’s sophisticated financial models. We use a variety of widely accepted valuation approaches in our analysis, incorporating the latest in techniques while noting required trends.

Valuation Reports

Tobin & Company provides comprehensive, narrative reports incorporating both financial analyses and qualitative points. The reports provide a logical progression clearly communicating pertinent information, valuation methods and conclusions. Our thorough conclusions detail all material factors relevant to the opinion. This engagement is appropriate when a client desires a professional, independent estimate of business value but does not require a formal opinion.

Fairness Opinions

TOBIN’s fairness opinions are comprehensive, narrative reports communicating our independent opinion of the value of a business interest for the benefit of outside constituents. We represent our client’s best interest beginning with initiating negotiation, through due diligence and finally to consummation of a transaction.

Shareholder Rights Plans

Tobin & Company advises and prepares clients for potential unsolicited acquisition attempts. In helping boards develop a takeover defense strategy, the Firm advises clients on the potential impact that the creation or extension of a plan has on shareholder value and provides recommendations regarding the exercise price for the plan. Tobin & Company also conducts a market analysis of the client’s susceptibility to a takeover attempt.