As a business owner, no one knows more about your company, its operational history, and where it’s headed going forward. When you determine the need for an independent appraisal, the ability to work in tandem with the company you choose to engage with will benefit all parties involved.
There are very likely areas within your financial statements you can elaborate on to paint a more accurate picture than simply what the numbers show. In addition, your experience with the markets and industry you operate in will provide added perspective to the appraiser when they research the competition and comparable businesses during the course of the analysis.
Review overhead and expenses to determine if any are discretionary and adjustable to how you might otherwise operate on a leaner budget. Look at what might be considered “one-off” costs in certain years that can be backed out of annual cash flow levels and review special compensation packages to you and your employees which might not be relevant to a potential buyer. You may be claiming a lower net income figure on your taxes each year because of these discretionary expenses. That is a common strategy for business owners each year as they best position themselves before year-end filing.
The goal is to create a normalized, realistic year-to-year snapshot that shows how the business can most efficiently and effectively run without consideration for added unnecessary benefits you may have created over the years for you and your staff.
When a small business changes hands, the new owner will have their own set of circumstances to consider and will often look at the most economical model to begin their operation until they too can create these added benefits once they become successful in the coming years.
From a market and industry perspective, advise the appraiser of local competition and similar businesses that may be public or available enough to make reasonable comparisons. Discuss future areas of growth you may have implemented but have yet to fully realize the added revenue streams.
It’s important to add these levels of perspective where you can so the appraiser better understands your business beyond the standard documentation that they are provided with by you or your financial advisors. The more the appraiser knows about your personal experiences as they relate to the history of your company and its operation, the more accurate the valuation results will be.