But you cannot simply snap your fingers. One of the critical aspects of a business valuation is to collect and assemble the requisite data. Generally speaking, this vital data may be categorized into the following three groups:
- Data that is specific to the company
- Data about the company’s industry and economic conditions
- Data about the market for ownership interests
The data should be provided in written form. It is gathered from on-site visits and interviews with those who are knowledgeable about the company. Generally, industry data is provided by the company and may also be available from public sources. Data concerning the market for ownership interests should include information about changes of ownership in competing firms, certain company transactions and various other factors (e.g., premiums or discounts) that might apply to the property.
The manner and timing of the data-collecting process can be significant. Most important, the process must be both thorough and efficient. For example, supporting analysts may be in the process of collecting data about the industry, various economic factors, the company’s rate of return and company transactions. At the same time, the principal analyst may be working directly with the company’s owners and top management team. These efforts must be coordinated to present an accurate picture of the business.
In any event, it is important for company management to reflect a balanced overview at an early stage in the proceedings. This way, all the analysts will be able to recognize important data as they progress with the valuation process.
When time permits, information being collected should be reviewed before any of the analysts formally visit the company. Then the focus can be shifted to the critical process of interviewing at the company’s site without anyone being sidetracked by tangential issues. The objective is to minimize the inconvenience of the interviews while maximizing the productivity gained from visits to the physical property.
Much of the information needed to conduct a business valuation will be obtained through these interviews with company management. However, the consultations are usually corroborated by inspections of documents on the business premises. Copies may be required before you can obtain the information necessary to the task.
Conclusion: This is only a brief overview of this extensive process. Contact an experienced professional for more details.
Other articles in the December 2010 Edition of Business Matters: