The majority of the time Bankers Advocate employs a certified business appraisal, it is for use when our Client is Entering or Exiting Business Ownership.
However, recently we were asked for a certified business appraisal, where the shareholders were not happy with the results their long-time president provided. The owners had called in a top turnaround consultant to review the company’s performance. The turnaround consultant reported to the ownership group the good news is the business is being run for the benefit of the family, the bad news is that it is not your family!
Ownership replaced the existing president with the consultant and profitability and cash flow were improved tremendously. The one problem left over from the old regime is that the company had loaned the ex-president the money to buy a small equity stake in the business. Now that he was gone, they needed to negotiate with him to buy those shares back. We were called in to value the business for a stock sale factoring in the minority discount and the fact the appraisal had to be to litigation standards (i.e. The appraiser would be ready to testify in defense of the appraisal, if necessary).
We gathered the data and our appraiser completed his work. The client was happy to see that the appraiser’s work valued the minority shares at a 75% discount to what they had planned to offer the ex-president.
Six months later, an update of the original appraisal was requested. The update confirmed that the consultant had created over $1.2 million in enterprise value under his stewardship. The ownership group is much happier and is looking for more investment opportunities in their industry.
The above real-life example encompasses the first three listed usages of possible Business Appraisal applications:
- Ownership Disputes
- Buy/Sell Agreements
- Investment Yardstick
- Fund Life Insurance
- Marriage Dissolution
- ESOP Valuation
- IRS & Tax Planning
- Estate Planning
- Joint Venture
- Equity Infusion
- Borrowing Justification
These are just a few of the examples where a certified business appraisal can be a valuable tool.