Yes, business valuations cost money, but savvy business owners don’t view the expense as a financial burden. They understand that it’s actually a smart investment that can more than pay for itself over time. If performed correctly, a business valuation isn’t merely worth the money, it’s a roadmap to increased profitability.
Every company has a need for consistent business valuations. In their most mundane applications, they’re necessary for public companies to comply with accounting standards, and for private companies to deal with gift or estate taxes, stock compensation, and capital structuring.
Whether a business has interested prospects seeking to explore an acquisition or not, every executive should understand their company’s worth at all times. And, let’s face it, only a certified expert can properly value depreciated assets, perform reliable patent valuations, or assess other intangible assets, which often play an enormous role in in determining a company’s overall worth. Knowing your company’s value is useful, and most certainly worth the money, especially when business owners perform periodic valuations and track performance over time. But appraisals become indispensable and priceless when leveraged strategically to boost profitability and improve operations.
A quality business appraisal analyzes a company’s finances, assets, operations, and practices, each aspect of which are not only detailed, but also benchmarked against similar companies that are often of comparable size, industry, and geography. In this context, a valuation can highlight strengths and bring to light weaknesses that are impacting your bottom line.
From a big-picture standpoint, companies can grasp which assets, practices, and disciplines are driving the value of their business. They’ll also have the ability to assess what risks are negatively impacting them, as well as anticipate how evolving market trends could factor into the company’s health down the line. Could anticipated drops in real estate values cause future challenges? Likewise, could changing industry conditions open up new opportunities to expand services or enter new geographies?
Business valuations can be used as strategic planning tools, and can even enable business owners to analyze how certain strategic business decisions would impact the company before the measures are actually pursued, saving time, helping to avoid costly mistakes, and redirecting resources to the best long-term value drivers.
Just as business valuations can help owners frame their best-case, big-picture strategic direction, a valuation can also point to smaller performance indicators that add up to big savings and profitability enhancements. Industry benchmarks can help a business assess areas where it’s outperforming the competition, and areas where it isn’t. These indicators could include metrics related to accounts receivable collections, headcount, process efficiencies, technology adoption, sales, customer data, and more. These metrics remove the mystery from your corporate performance and provide a clear roadmap for how, specifically, to better compete in the marketplace.
So while it’s tempting to view a business valuation as a costly “nice-to-have” that can be indefinitely postponed, it’s actually a tremendous investment to make in your business. The insights and information will literally shape your company’s future trajectory, ensuring your daily operations and strategic initiatives are calibrated for maximum growth and impact.
As we embrace increasing digitization, it’s important to consider how technology is reshaping our world. Increased online activity is great for companies hoping to quickly and cost-effectively gain notoriety and influence; after all, it’s much easier for brands to reach larger national and international audiences via the web and social media platforms. But the additional exposure creates risks, making brands more susceptible to trademark disputes.
Trademarks are used to differentiate a company’s products and services, and can serve to protect a logo, name, phrase, design, or any combination of these elements. They are, essentially, your brand. Your reputation. And while it’s understandably an imperative for any marketing department to promote the brand as widely and loudly as possible, ideas take on a life of their own in the virtual world. Concepts are shared and, much to our dismay, embraced by competitors. This occurs at a dizzyingly fast pace and, without established trademarks, can leave the individual or company who pioneered the concept at a huge disadvantage in the marketplace. There’s nothing worse than coming up with a perfect way to brand an offering, only to have that competitive edge snapped up and exploited by someone else with more marketing resources and budget at their disposal. This can obviously hobble a company’s ability to sell its products, grow, and thrive.
The truth is, however, that even when a company does take the appropriate steps to protect itself with trademarks, it’s often not enough. Intellectual property disputes have become a disturbingly common occurrence, and seem to be an unavoidable byproduct of digitization.This isn’t to say that businesses shouldn’t bother to trademark. Quite the opposite is true. Businesses should trademark, and then seek valuations of their trademarks. This is because trademarks are more important than most people think. They’re the brand and the reputation, yes, but they’re also a company’s industry standing and its ability to effectively sell its services.
Trademarks serve as valuable intangible assets, making them an important component to a company’s worth. Economists largely agree that intangible assets like trademarks, brands, intellectual property, and licenses now account for the lion’s share of a company’s economic value, and they represent key performance drivers in our evolving knowledge-based economy. This means that in order to understand the current value and success of a company, it’s critical to not only have trademarks and patents in place, but to perform a valuation of the assets. This helps a company assess its competitive advantage, and also helps to protect it, because understanding the value of a trademark makes it possible to quantify the stakes in any legal disputes that may arise.
Trademark valuations help protect brands by providing evidentiary support of value. The exercise also helps management teams understand valuable business information that can help set future strategy, including: the historical records and financial projections associated with the trademarks, name recognition, advertising expenses and results, competitive landscape, and more. Trademark and intellectual property valuations help assess a business’s current market value, and provide key insights on how to increase the value over time. Valuations are also a common requirement for mergers and acquisitions, bankruptcy proceedings, trademark sale and/or purchase, tax reporting, litigation support, and determining royalty rates for licensing purposes.
Trademarks are how you communicate with the world, how clients find you, and how others assess you. Ensuring that you’ve done all you can to secure your trademarks is a necessary step to take for your business. And because trademarks can appreciate in value over time, consider seeking periodic valuations as a way to measure long-term growth.
Patent infringement is becoming an increasingly common issue facing established companies. If your company has developed a progressive product or service that meets a specialized need in your industry, businesses will attempt to replicate your success.
As the threat of patent infringement continues to rise, it becomes necessary for businesses to protect themselves. The first level of protection is to file for a patent with the U.S. Patent and Trade Office (PTO), which grants you legal protection against competitors who want to steal your products or authentic business ideas. However, obtaining a patent is only one layer of protection; the government has no legal obligation to guard your business against any violations—that responsibility rests on your shoulders.
According to the Patent and Trade Office, patent infringement can cost businesses an average of $250 billion and over 750,000 jobs every year. Every month, stories of patent infringement litter the news cycle and showcase how commonplace the reality of these issues are. Just recently, BlackBerry sued Facebook for incorporating features into their messaging app that infringed upon BlackBerry’s patents, proving that even well-established companies like Facebook are not above using another company’s information for their own gain.
If a competitor tries to replicate, use, or sell your patented invention, it warrants legal action. This is why patent valuations are so critical for businesses. A patent valuation not only proves the overall worth of your company, but corporations and law firms seeking retribution for patent infringement require a patent valuation to validate loss of income in court. It is your right to not only request an injunction to prevent additional losses by stopping the violator, but ask to be compensated for damage and losses to your brand.
Because patent infringement lawsuits are timely and expensive, it may be beneficial to pursue a few options before taking legal action. You or your attorney may attempt to contact the company in question to set up an in-person meeting in order to find a solution before taking it to court. Due to the complexity of patent infringement, a meeting will not always end with a resolution, which is when a court case may be necessary.
In the event the infringement suit is taken to court, it is important that you not only have an attorney to represent you, but an appraiser as well. The defendant will do everything in their power to question your patent’s validity and point out any inconsistencies in language. If you don’t have expert representation, you risk losing your case.
At Appraisal Economics, our team is experienced at providing expert witness testimony in court. We fight to protect your patent and brand, and to not only ensure that you are compensated for the full monetary amount you lost at the hands of your infringer, but to protect your patent against future infringement.
Investors love renewable energy. This influx of money, paired with growing market demand for solar energy, has caused rapid market growth. Globally, the International Energy Agency (IEA) estimates that solar energy’s share of energy production will soon account for more than two percent of global energy generation. In the US, the value of the solar market was $23 billion in 2016, and has grown by approximately 68 percent every year over the past decade. But the market valuation of solar generation assets remains a source of tension between regulators, developers and investors, as these entities struggle to best structure asset appraisals.
Standards, of course, vary based on the purpose of the valuation, but the most common valuations will be based upon fair market value (FMV). FMV is calculated any number of ways, but solar valuations are most useful when integrating an approach that draws upon cost, income and market based valuation methods because each reveals relevant information that can be weighted appropriately depending on the situation.
The cost approach considers either the costs to reproduce identical assets, or looks at the replacement cost of the assets. From a valuation perspective, it’s often the least reliable calculation of the three. It does, however, provide a relevant data point for estimating FMV. After all, buyers don’t want to pay more for existing assets than it would cost to develop something similar. But in circumstances where this model provides a higher indication of value than the other two approaches, perhaps due to a below-market power purchase agreement (PPA), the cost approach should be given little weight in a final valuation. Likewise, in situations where the cost approach produces an asset appraisal that’s lower than other methods, this may also justify a heavier reliance on other methods, because a seller may demand the additional value.
An income approach relies on the asset’s expected earnings capacity. This approach is often the most relevant approach for pricing solar assets, as it takes historical financial data, specific contracts and incentives into consideration. It’s most appropriate for solar assets when looking at discounted cash flow (DCF). This method analyzes all relevant factors an investor would typically examine, including economic benefits, risk and the liquidation time horizon. Its biggest weakness is its reliance on examining the estimated useful life of the system. Appraisers will likely still face difficulties determining the unleveraged discount rate or weighted cost of capital, as well as long-term equity and debt weighting. Tax attributes can also be difficult to project. All projections should be determined from the market participant’s perspective so that correct estimates can be reached for tax credits, depreciation, costs, financing rates and debt and equity weighting.
A market approach can be used when a number of comparable assets – stemming from the same geographic region – have recently switched hands in the larger marketplace. In this instance, valuation metrics for those transactions can be weighed. This isn’t always possible, though, and if sufficient comparable assets can’t be identified, the method can’t be used.
Every power plant valuation is different, and likely riddled with its own inherent complexities and variables. This is why it’s so important to employ all of the above methods in these assessments, and analyze each data point in relation to its specific value within a given scenario.
Tangible property appraisals are a pivotal part of any business—whether you are an entrepreneur just starting out, or own a slew of profitable companies. Tangible personal property appraisals serve a variety of purposes, each one vital to the distinct operations of the business. Tax and financial reporting, property insurance, and ad valorem taxes are just a few commonplace examples of where these appraisals are necessary. More profoundly, asset appraisals affirm the value of your business. They legitimize your position to stockholders and disclose eminent information about the business during mergers and acquisitions.
Unbeknownst to many business owners, tangible personal property appraisals also serve another purpose in the business realm—protecting your business in the event of a move. Having to relocate your business is usually an exciting milestone; an achievement that signifies outgrowing a space to pursue even more opportunities. Whether you’re relocating your business to a bigger space across the street or traveling across state lines, a move poses risk of loss or damage to your items.
You can take precautionary measures to protect your items, but once they are in transit, everything is out of your hands. A tangible personal property appraisal serves as an extra protective measure if a moving-related casualty would occur at any point during the move. Tangible personal property includes everything from staplers to manufacturing equipment; office furniture to company vehicles. Anything that is not “nailed down” is considered to be a business’ personal property, but not all of these items require an appraisal. An appraisal expert will focus on valuing the costlier items—heavy machinery, computers, printers—over items that are not pertinent to the immediate needs of the business and are more inexpensive to replace—office decor, stationery, staplers.
Relocating a business is demanding and requires effort that is beyond the physical capacity of most companies. For this reason, business owners will hire a moving company to assist them with the move. These moving companies will offer you liability coverage—take it. However, don’t believe that it will be completely sufficient. If one of their staff misplaces an item or, even worse, causes irreversible damage to a piece of your property, the reimbursement amount they are responsible for paying won’t come close to covering the item’s full value. Your business insurance provider can help compensate for this loss by covering the remaining cost of repairing or replacing the item, though.
You should work with an appraiser to value your business’ expensive property well in advance of your move. Ideally, no property will be lost or damaged during your move, but if something were to happen, your insurance provider will need to see proof of value. Your appraisal report will serve as a testament to what your property is worth so that you are guaranteed reimbursement for the full amount. If the appraisal is not done in advance, you prohibit yourself from asking for the full market value of your property.
Give yourself peace of mind before your big move by working with Appraisal Economics. Our asset valuation services provide a more detailed and accurate process in determining the value of your tangible personal property.
When something is in high demand, its inherent value rises through new-found popularity as the product or service becomes more covetable to consumers. The monetary value of the product or service then increases proportionately to reflect its desirability, a pattern that is consistent across all industries.
Every market ebbs and flows with the economy; companies will experience waves of prosperity followed by periods of stagnation or downswings – all a normal part of business. The heavy machinery industry is no stranger to this fluctuation, but the global construction market has been trying to recover from a slump that has spanned over the last eight years. Low commodity prices, a weak economy, and various political events have caused heavy machinery sales to plummet from $102 billion in 2011 to $69.8 billion in 2016.
This downturn lasted much longer than anticipated, but the long-term direction for equipment sales is already on the upswing, so much so that it is predicted the industry will be up 28 percent by 2020. Dump trucks and excavators will see the quickest rise in value, but the demand for heavy machinery will continue to grow over the next four years.
The surge comes from the industry’s need to offset the issues resulting from the aftermath of the last financial crisis. The effects of the crisis not only hit North America hard, the rest of the world felt its consequences as well.
This projected growth answers to the growing population; as the population expands, more properties will need to be erected in order to accommodate more citizens, especially in developing countries across the globe. What this means for heavy machinery is this: a high demand for equipment means more valuable machinery. The best thing you can do for your business is to get an up-to-date valuation of all your equipment, used and new.
An equipment appraisal will benefit you in two ways: it creates a bargaining opportunity for you within the market to forge your own growth, and it also provides you with accurate documentation.
As the construction industry hits another peak, the market will become more saturated. If you get ahead of this growth, it will give you a competitive advantage. It will also ensure that no one else profits off of your gain, i.e., if you see a hike in taxes just because your equipment is more valuable.
In response to a prosperous market, more machinery will start being manufactured; this new equipment will be a commodity for some. On the other hand, used equipment may be just as, if not more, valuable in certain circumstances. Heavy machinery can be a hefty investment at first, which makes used equipment more desirable. You can do the same quality of work without having to make a huge financial sacrifice at first.
Being in the world of heavy machinery, it’s your due diligence to take advantage of this market at the start of a booming – and prosperous – future. An equipment valuation will benefit your company as you poise yourself for success.
Regardless of industry, every entrepreneur will step out into a dog-eat-dog world, fighting for their company’s survival in oversaturated markets. Restaurant owners know this trial even more so than many other entrepreneurs; entire life’s savings are poured into restaurants that won’t even make it to see their first or fifth anniversaries.
Some restaurant owners are fortunate enough to choose when they are ready to sell; others are forced to sell on shorter notice. Disregarding circumstance, the ultimate goal of each restaurateur is to acquire a fair profit from the sale of their business. A restaurant owner’s bias will inflate this desired number, of course, but a valuation of the restaurant is the only way to get a final, fair number.
The valuation method used to determine this number will be reflective of the restaurateurs’ reasons for selling their business. A certified appraiser will use the appropriate method to formulate the value, doing their due diligence to represent the financial loss, personal sacrifice, and time commitment that has gone into preserving the restaurant, while keeping fair market value in mind.
But what does selling a restaurant look like when there are over 620,000 food establishments scattered across the United States? Experts warn restaurateurs to be mindful of their timeline when possible; selling a restaurant in an overcrowded market takes away your ability to negotiate, lessening the amount you get from the sale.
Every prime location has become congested with food and beverage establishments – individually-owned or chains – that are all competing with one another for high levels of foot traffic. Restaurants are now growing at twice the rate of the population. No matter what geographical spot you select for your restaurant, you will be side-by-side with other restaurants who have your same goals in mind; unfortunately, only a handful of restaurateurs will survive.
Prospective buyers are weary of purchasing restaurants during these riskier periods. The rise of restaurants has put overwhelming pressure on individual owners – more food options means falling profits – yet chains restaurants continue to grow, making it even more difficult for smaller restaurants to prosper.
Depending on your situation, it may be in your favor to postpone selling your restaurant. Even if you wait to sell, a valuation is still advantageous. It will not only highlight the value of your restaurant as it currently stands in the market, it will also provide you with insight on how you can increase that value over time.
Technology has become such an integral part of our lives that we have stopped consciously celebrating its profound effects. When the internet was first made accessible to the public, it pioneered a digital world that we were fated to adapt to – some willingly, others more hesitantly.
Fast forward to the late 1990s to the genesis of social media and the popularity of blogging sites. Now that most of the developed world is active online, it is opening up opportunities for communication, development, and discovery of information. However, the inexhaustible possibilities that result from such innovative tech also opens up the risk for unforeseen challenges. Just like we adapt to digital’s life-changing improvements, we must also adapt to its perils.
One area that is benefiting from digital’s evolving landscape are businesses. The internet gives their brand a place to exist, while digital media – particularly in the social media realm – puts them in front of the eyes of online users both nationally and internationally.
Brands are living in the digital space because they are evolving in ways that were impossible before the invention of the internet. Social media has become a vessel to reach a vast, diverse audience of people that was once limited to a business’ physical surroundings, or at least constrained to the nation’s borders.
The digital world welcomed Facebook in 2006 and, since then, this channel has become one of the main platforms that can be credited with giving businesses a digital voice. Brands can post their digital content at a rapid rate and users can just as quickly share that information until they reach thousands, even millions, of people.
This public space and its accessibility becomes the concern of trademark lawyers. Protecting these brands is more complex than it was decades ago. There are trademark issues that pertain to domain names, as well as concerns that arise from the distribution of information – e.g. are trademarks being violated in any online conversations?
Trademark lawyers must be conscious of the reach of their clients’ brands. One business could be active across multiple digital platforms, while one company could have a variety of brands engaged on a plethora of social channels. A trademark lawyer’s protection must not only extend far into this digital space, but must also reach globally as mass amounts of international users begin interacting with a brand’s digital content.
To serve the needs of their clients in a complex digital space, a trademark lawyer must be knowledgeable of the appropriate legislation in order to act on any potential infringements that happen anywhere on the web, or halfway across the world. They need to be wise to an increasing number of resources, as well as competent in handling a high level of activity.
This opportunity for expansion will also naturally affect the value of a brand, which is another area that demands the involvement of the trademark lawyer. When a brand enters into a new territory – which the digital world makes possible – it is profitable for the business to consider a partnership in order to effectively broaden their audience. A business will not only want to know how these partnerships will affect their growth (and value), but will want to work with a trademark lawyer in order to ensure their intellectual property is protected.
A trademark lawyer is no longer just restricted to legal issues, they become an integral part of their client’s business strategy.
Behind all business endeavors is a drive for success. Business owners experience this push first as they are the ones faced with the task of translating their ideas into a tangible company. As the business grows, it will absorb additional team members who have interest in working with the company. If this growth is sustainable, it will also eventually accumulate prospects interested in acquiring the company.
In 2015, an estimated 64 percent of business owners were preparing to transfer ownership of their company within the next ten years. In a competitive and wavering market, will these business owners be satisfied with the money they acquire from the sale?
The years of hard work and sacrifice that go into building a profitable company often cloud an owner’s judgment of their company’s worth. They are prone to measure reward against the amount of time they have personally invested in the company – years of challenging work and constant risk-taking would have to pay off substantially in the end, right? This bias corresponds with ego; because someone has invested so much of themselves into a company, their profit should reflect that. On the other hand, however, there are some business owners who are completely blind to their company’s worth.
These different approaches to management may seem extreme, but they are more common than one might think – and they are exactly the type of business owner you don’t want to be. Every business owner should know what their company is worth well in advance of when they are planning to sell. Valuations have become a critical facet of business strategy because they take a company’s cash flow and all of its other nuances into consideration when assigning a number to your business.
Knowing this monetary amount not only equips business owners with knowledge of their company’s past and shows them where they stand in the market today, but a valuation can also help you plan for the future success of your business. Seeking valuations only when they are necessary is a rather short-sighted approach. Instead, consistent valuations can be used as a tool to track performance not just in terms of estimated revenue, but in overall value as well.
Tracking the trajectory of a business using valuations can highlight unforeseen patterns that could be hindering your company’s growth – or any healthy patterns that could continue to grow the company into something even more substantial. You should consult these business valuations as a resource to assist you in the decision making process. Even seemingly beneficial decisions could have weighty ramifications on the positive growth of your company. A valuation can help you analyze how a strategic business decision would affect your company’s bottom line before you implement it.
Using valuations as a compliment to your business strategy will give you an edge over your competition. The more intuitive you can be, the better off your company will be. Business valuations do not have to be contingent upon monumental situations, although they are necessary in those moments. Creative owners can use them as a guide to formulate a business strategy that will lend itself to continued growth year after year. When it comes time to sell, you will know what you are worth.
During litigation, things can sometimes get negative very quickly. This is where expert business valuation services are necessary to protect your interests and ensure that the dispute gets resolved as quickly as possible. In various business and personal litigation, value will be of utmost concern for those parties involved.
Unfortunately, business valuation is not an exact science, and two valuation professionals may not come up with the same results. It is up to the individual party to hire valuation experts with the skills, experience, training, and proven approaches to ensure the valuation will be accepted by the intended users.
However, whether intentional or not, valuation disputes do sometimes occur. When they do, the dispute will typically end up in court. In some cases, a business valuation will be required. In others, it will be voluntary but highly recommended to ensure a fair and amicable transaction. Here are some of the most common scenarios that may require valuation dispute resolutions:
- Merger and Acquisition Disputes
- Bankruptcy Analyses
- Buy-Sell Agreement Disputes
- Shareholder Disputes
- Loss of Business Value Claims
- Breach of Contract Occurrences
In these scenarios, both parties will hire attorneys who will seek business valuation experts to determine the correct value of a business. There are several ways business valuation analysts may be used during litigation.
In the pre-case phase, business valuation services may be necessary to help litigators build the case and determine how to proceed. A business valuation expert will use his or her experience to define the valuation issues, focus on all relevant information in the case, and quantify results based on the economics as well as common sense.
In addition, business valuation experts are often used during the courtroom proceedings to provide expert witness testimony, analyzing the financial aspects of the case. They can also be called by a litigation team to dispute evidence or witness testimony provided by the other party.
Given these roles in the case, your litigation team will need to secure business valuation services from a reputable firm with a substantial understanding of not only different business valuation approaches, but dispute litigation as well. From intellectual property valuation to machinery valuation services, the team at Appraisal Economics can serve your unique business valuation needs in and out of the courtroom.
If you are looking for firm with an international reputation for fair and accurate valuation and consulting services, we encourage you to contact us today.