WorldWide Drilling Resource

25% of Family- Owned Businesses will Change Owners in the Next Five Years? Part 1 Adapted from Information by Allegiance Capital Corporation The most recent Price Waterhouse Coopers family business study states 25% of family-owned businesses will change owners within the next five years. Some will transfer to the next generation; howev- er, 16% will sell to another company, or to a private equity investor. Before selling, every owner wants to know how much their company is worth. So, you have heard another company, like yours recently sold for six times earn- ings! You know your company is better managed and more profitable, so it should be worth at least seven times earnings - right?? Not so fast! Business valuations are often mythi- cal, based upon hearsay or rumors of the most recent sale in the industry. To learn more about a company’s worth, many own- ers get a professional business valuation, but these are less important than you might think. A valuation is just a snapshot of a company’s value, based on its financial statements, at a specific point in time and can change quickly and dramatical ly depending on the economy, industry, tech- nology, the owner’s health, and the market. The bottom line is your company is worth what a specific buyer is willing to pay for it. Business valuation services - are they worth the cost? There are companies who provide business valuation services. Independent appraisers and financial ana- lysts sell their services, and can be very useful. However, you should always check their qualifications. Each of the three major U.S. valuation societies - the American Society of Appraisers (ASA), American Institute of Certified Public Accountants (CPA/ABV), and the National Association of Certified Valuation Analysts (NACVA) - have its own set of business valuation standards, which accredited members adhere to. There are also firms that conduct sem- inars on how to value your business. Some promise to help sell your company after the seminar, but these seminars are expensive, and the main objective is to charge the busi- ness owner for the valuation. Ultimately, they sell very few businesses because they make more money doing valuations. When is a professional valuation use- ful? A well-done business valuation can cost from $30,000-$50,000, so before you pay for one, make sure you understand what the purpose of the valuation is. There are times when a valuation is necessary and valuable, such as: j When the owner does estate plan- ning. j When one owner wishes to buy out 79 WorldWide Drilling Resource ® OCTOBER 2013 another. j When family members want to be bought out. j When assets must be redistributed (e.g. divorce). j When securing loans from a bank or lender. Remember, a valuation may not be the most reliable indicator of what you can get in the marketplace. The best way to optimize the price is to select a firm to rep- resent the company in its sale. They will work with you to determine the value of your company based upon the most impor- tant factors valued by buyers. We’ll take a look at what determines the value of a company next month.