Business Valuation Process
A business valuator not only needs to see a business’s financial information, but needs to know many other details about a company in order to properly appraise it. Below is a list of questions that you will likely be asked as part of the evaluation. Not all questions apply to all types of businesses. As lawyers, we help people buy and sell businesses, as well as determine valuations during litigation of business law cases. If you have a question about a business valuation or business litigation, contact a business lawyer so we can help guide you through the process.
Business Organization and Structure
How is the business legally organized (corporation, sole proprietorship, partnership, etc.)? If the business is a partnership, how many partners are there, and who are they? If the business is a corporation, then how many shareholders are there? And then, who are the major shareholders, and what percentage of the total outstanding stock does each own? Other questions include whether the stock publicly traded? If it is publicly traded; then which market is it on and what has been the historical price and the current price per share?
These are some of the business history questions that will be asked. How long has the business existed, and for how long under its present owners? What is the company’s litigation history? What government agencies have regulatory or other control over the business? Is the business currently in compliance with all requirements? Is the company engaged in any joint ventures or similar undertakings? What are the company’s major accomplishments? What are its failures? Does the company’s success depend heavily on one or more key employees? Are there any potentially threatening situations in connection with management, products, services, finances, legal obligations, etc.?
Products and Services
These are some of the services and product questions that will be asked. What are the company’s main products and/or services? How long has the company been selling each product/service? What has the sales volume been for each product/service within the last five years? What are the costs and gross profit of each product/service? What portion of the cost is attributable to labor, overheard, and materials?
Marketing of the Business
These are some of the marketing questions that will be asked. What are the main uses and markets for each major product/service? What are the prospects for growth in these markets? Who are your current principal customers/clients or patients? What percentage of sales for given major products do these principal customers represent?
These are some of the Finance questions that will be asked. What are the business’s sales and earnings for the past five years? What salaries/dividends have been paid to owners/stockholders for the past five years? What is the state of inventory? Is the inventory perishable? What are the details of the accounts receivable and accounts payable? Be ready to provide not only a full accounting but copies of bills, invoices, bank statements, loan statements, etc.
Questions about the facilities. Is real estate owned or leased? If leased, what are the terms of the lease? What are the zoning restrictions on the current real estate? Is any equipment leased? Which? Is there excess or idle capacity? How much?
• What are the roles of key executives and personnel?
• How many employees does the company have?
• Has the company established standard pay rates for its various positions?
– How do these compare with pay rates of other similar employers in the area?
– What is the salary review policy?
– What are the employee benefits?
– Does the company pay all benefits, or do employees pay part?
– If so, how much is the employer contribution?
• Are any employees relatives of the executives or owners?
– If so, what are their duties and how much are they paid?
• Are there any employees on the payroll for special reasons (friend of the owner, long-term service, etc.) who do not pull their weight?
• Are workers unionized? If so:
– Which workers?
– What are the details of the labor contracts?
– Have their ever been any strikes?
• What has been the turnover rate?
• Does the company provide formal job training?
• Are there written personnel policies?
• Are any employees or management under contract? If so, what are the terms?
• What are the key management members’ backgrounds/salaries?
• Does management receive any “perks?” If so, what, and how much are they worth?
• What are the management capabilities of persons in charge of key departments?
• Are there strong differences of opinions between management members? What are they?
• Do various departments work well together, or is there friction?
• If the business is a corporation:
– What control do major stockholders exercise over the business’s policies and activities?
– Have there been proxy fights or attempts to take over the company?
If the Business Is For Sale
• What assets and liabilities are expected to be included or excluded from the sale?
• If the business is a corporation, will the sale include the capital stock or just the assets?
• What are the preferred payment terms?
• Do you expect a broker to be involved? If so, what is the fee and who will pay it?
• Are key management staff aware of the sale?
• Will a sale require substantial management reorganization?
• Which management members would remain following the sale?
• Will management cooperate in the sale and post-sale activities?
• Will the sale significantly impact union labor?
• What licenses, contracts, etc. must be transferred to the buyer?
• Are any partners or major shareholders opposed to a sale, and who big a hurdle will this create?
Free Consultation with a Business Lawyer
If you need legal help with a business, call Ascent Law for your free consultation (801) 676-5506. We want to help you.
8833 S. Redwood Road, Suite C
West Jordan, Utah
84088 United States
Telephone: (801) 676-5506