Quantive’s Business Valuation Process
Quantive’s business valuation reports are completed by a certified appraiser and will typically be completed in 2-3 weeks. (Arrangements may be made to expedite the report if you are on a short time line). Our process begins with reviewing client documents as well as conducting an interview with the client. At the point, subject to follow-on document requests, the analyst will complete financial statement analysis, will perform a series of models to determine valuation, conduct a reconciliation of values- all of which forms the basis of a defensible valuation report.
While each situation is slightly different, the general starting point for our document requests will include:
- 3-5 years of company tax returns
- 3-5 years of historical profit and loss statements
- 3-5 years of year-end balance sheets
- Current year-to-date profit and loss statement
- Current balance sheet
- Management forecasts or budgeting (if readily available)
Depending on the nature and scope of the assignment, we might also request other documents such as the company’s buy-sell agreement, FLP formation documents, inventory data, AR/AP aging, and other documents as necessary.
The appraiser will conduct an interview with the client to get an in-depth understanding of what drives the business. Our goal is to quantify the financial statements, and beyond that understand both the value proposition and risk factors associated with the company. The interview will review a broad range of topics, including: growth prospects, customer profile, vendor data, staff and employment history, review of any ongoing litigation or potential claims, and so forth.
While the interview can be done on-site, oftentimes we are able to complete the bulk of the project via phone conference.
Analysis: Crunching the Numbers
The appraiser will analyze the companies normalized financial statements, and use one or more of the several approaches below. Our professionals will consider each model that is appropriate for the subject company.
Approach to Valuation: There are 3 recognized approaches to valuation (with many models under each). They are:
During the analysis phase our professionals will also:
- Review buy-sell agreement for any controlling language or impairments to marketability and control
- Conduct a comparative analysis of the financial statements
- Complete any normalizing adjustments to the financial statements
- Gather and analyze comparative market data
- Develop an appropriate Discount Rate for the subject company
- Determine required Discounts for Control or Marketability
Reconciliation of Values
To arrive at a final estimate of value, the appraiser will reconcile the values derived in each of the valuation methods and combine them with appropriate discounts.
The Valuation Report
When a final valuation conclusion has been reached and all relevant information has been considered, the valuation report is delivered to the client. We thoroughly explain the report to our clients and their advisers and answer any questions to ensure a thorough understanding of our conclusions. A typical report runs between 30-50 pages and will include:
- Summary Letter reviewing the valuation and findings
- Statement of Limiting Conditions
- Overview of Subject Company
- Review of adjustments to financial statements
- Detailed discussion of all valuation methodologies considered and used
- Detail of valuation calculations and supporting data