The initial purpose of a Business Valuation is to determine the most
important factor within the valuation process that will drive how the assignment
is to be performed. A valuation performed on a going-concern basis would be very
different than a valuation of the same business performed for liquidation
purposes.
When performed on a going-concern basis, the valuation of a company is, in
general, based on the projected earning of the company. In other words, how much
could a hypothetical buyer of the company expect to receive as a return on his
or her investment. These projections are based on the current and historical
financial condition of the company as represented by the financial information
provided to the appraiser. They are also based on company management's estimate
of future earnings.
The entire valuation assignment generally takes approximately six (6) weeks
after all pertinent company information has been received by the valuation
analyst. This information includes five (5) years of historical financial
statements (or tax returns), including the most recent interim statements (or
quarterly returns). This information also includes company background
information, year of incorporation/formation, management experience, information
on facilities, customer base, competition, employees, shareholder/ownership
breakdown, extraordinary expenses incurred during the year, and management’s
projected earnings for the next five years.
Prior to the completion of the assignment and at around three (3) weeks into
the project, a Discussion Draft is sent to management to verify that an accurate
financial picture has been presented to GROCO and that the projections made are
a realistic expectation of future results. After this Discussion Draft is
reviewed and accepted by the company management, the final report is issued.
This draft phase is for the appraiser’s benefit. Any attempt to use this phase
to control or affect the ability of the appraiser to perform an independent
review of the business will not be tolerated.
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