New online business e-valuation
Useful, but you still need the human touch
a bargain-basement way to determine your company's worth? Look online.
Electronic business valuation programs are
readily available, both online and through Internet-marketed software
programs that retail for a fraction of the cost of a full-blown
The good news is, depending upon your needs,
these programs may save you tens of thousands of dollars.
The bad news is, they all fall short of providing
an accurate market estimate of what your company might be worth.
For that, you'll still need the human factor.
business valuation works
Business valuations are typically done prior to the sale, purchase,
reorganization or dissolution of a business, to obtain a loan, establish
an Employee Stock Ownership Plan (ESOP), for estate planning, to
settle a divorce or simply to keep investors informed.
Financial analysts use a two-step process to
arrive at the value of a business.
Step one is to crunch the numbers. That is,
feed complete financial information into one or more standardized
- Discounted cash flow analysis isolates
the company's cash flow to capital ratio and projects it over
- Asset appraisal analysis determines
the worth of a company's property, plant and equipment, often
as a prelude to liquidation.
- Replacement cost analysis evaluates
a company by what it would cost to replace its assets, usually
as a prelude to a merger or acquisition.
- Comparable companies analysis provides
a relative business valuation based on the selling price of similar
companies that recently sold. In the case of public companies,
stock price is also compared.
- Comparable transactions analysis uses,
as a benchmark, companies that recently sold all or most of their
Each method provides a slightly different picture
of the company, rather like photographing a building from different
angles. Alone or in combination, they yield a rough estimate of
the company's worth.
Step two involves analyzing the company's market
value. It takes into account economic and market conditions, selects
and applies performance indicators and multiples based on the analyses
mentioned above, and factors in results of a due diligence review
before issuing a valuation opinion, often in terms of asking
price or per-share price.
is the best price
Malon Wilkus, chairman and CEO of Capital.com,
spent five years developing a valuation method for private companies
and three years bringing it online. By using Capital.com's Automated
Online Valuation, financial analysts, chief financial officers and
owners of private companies may crunch their own numbers, password-protect
the result, and even return in the future to generate an updated
report in minutes.
The cost? Zip. Nada. Absolutely nothing.
"It's very hard to get a business valuation
of a private company done, period," Wilkus says. "It costs a lot
of money; typically, with a company of $28 to $30 million in revenues,
it's going to cost them somewhere between $15,000 and $25,000 to
get an evaluation done the first time and subsequent valuations
tend to cost somewhere between $3,000 and $8,000. This is quite
new, and Capital.com provides it for free. It's a powerful capability."
It's a freebie Capital.com provides in hopes
that small to midsize business owners might use one of its financial
analysts or ready financial institutions. Looking to raise financing?
Considering an acquisition, recapitalization or buyout? Thinking
about selling? Help is just a mouse click away.
Wilkus hopes to lure financial professionals
back time and again with the high-powered automated online valuation
"For the first time, the CFOs of private companies
can actually make valuation presentations to their board of directors
every month or every quarter and have a real good sense of where
they stand vis-a-vis the public companies that are in the same industry,"
Wilkus admits his free online service isn't
intended to replace a full business valuation.
"It's not meant to be an opinion as to value.
There are a variety of assumptions that the system allows you to
manipulate, but it does tend to take a professional valuation firm
to know what assumptions are appropriate and what aren't. However,
if you keep the same assumptions each time you run a valuation of
your company, you can start to see trends of how you're doing, how
the marketplace is performing in terms of public company comparables
and how it impacts you in terms of value."
Nor is Capital.com the only system out there.
Equity Appraisal Reports of San Carlos, Calif., offers a $250
"snapshot" valuation report. E*BizValue
of Petoski, Mich., offers a $295 online valuation within 48 hours
and guarantees it will be within 5 percent, plus or minus, of any
other service or your money back.
Software programs abound, as well, from the
$67 Business Valuator offered by the Australian software company
Ltd., to the $695 Valuation Master, endorsed by the National
Association of Certified Valuation Analysts.
Richard Pollack, business analyst with Berkowitz,
Dick, Pollack and Brant of Miami, isn't scared by the emerging
"You can't apply a cookbook approach in doing
a valuation," he says. "You've got to go out and visit the company,
you've got to understand the business, the strengths and weaknesses
of the business, you've got to know something about the management,
about the product they're making, about their customers, their suppliers.
That is the only way you can develop appropriate valuation and capitalization
Pollack admits computers make his job easier.
He uses many of the same programs to crunch his own numbers. But
without someone to connect them to a living, breathing business,
he says they just won't make it to market.
"There's no way that you can do an evaluation
just by applying a mechanical technique off of a computer. That's
just not going to cut it. It may help you with the numbers, but
it's not a substitute for the financial analyst doing the work and
spending the time and exercising good judgment."
Colin Gabriel, author of How
to Sell Your Business and Get What You Want, agrees for
"If you are really trying to find the true value
of a business, there's only one way to do it in my view, and that
is to talk to potential buyers," he says. "You want to find out
what the traffic will bear, and you can't find out what the traffic
will bear from an academic analysis of data."
goal: to get more
Gabriel says the real point in getting a precise bead on your
business is so you can then go to market and get more than
"When you have something for sale, you hope
that somebody will be irrational in their interest, or what you
have to offer fits into a broader strategic plan of theirs and they
are therefore prepared to pay more than what would appear to be
its value," he says.
It's one of several reasons he recommends having
a financial analyst in your corner.
"People get wrapped up in the emotions of it,
and they can kill a deal when emotions come into play too much,"
he warns. "Their judgment is not as sound as it would be."
Bottom line: While a full business valuation
opinion may still be too costly for many small businesses, it is
now possible to get very useful data reports for little or nothing
Jay MacDonald is a contributing
editor based in Florida
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-- Posted: June 9, 2000