FAQ's
Frequently Asked Questions
Welcome to our Frequently Asked Questions (FAQs) section. At Smith Business Valuations, we understand that navigating through the valuation process is a unique endeavour that a business owner may only endure once or twice in their lifetime. As such, we have encountered some consistent questions on an ongoing basis.
Frequently Asked Questions
Welcome to our Frequently Asked Questions (FAQs) section. At Smith Business Valuations, we understand that navigating through the valuation process is a unique endeavour that a business owner may only endure once or twice in their lifetime. As such, we have encountered some consistent questions on an ongoing basis.
There are three main valuation reports issued by Chartered Business Valuators (CBV) and defined by the Canadian Institute of Chartered Business Valuators (CICBV): Calculation, Estimate, Comprehensive.
The pricing of a formal valuation report is contingent upon a number of factors unique to each business. Among these considerations are:
- The scale of the business operations, often gauged by annual sales volume.
- The purpose of the valuation, alongside the type of valuation reports required.
- The quality and reliability of financial and other required information.
- The intricacies surrounding ownership structures and the dispersion of equity rights.
To obtain an understanding of the associated costs and for a free consultation and quote, please contact SBV.
Yes, we are experienced with the preparation of guideline income reports for the purposes of determining child or spousal support in accordance with the Federal Child Support Guidelings and practice standards of the CICBV for Expert Reports.
No. This is an area outside the scope of a business valuators’ expertise. We typically rely upon management’s best estimate or an expert’s real estate and equipment opinion of value.
The first step in a typical valuation process is to sign a letter of engagement with an agreed upon valuation date, percentage of interest to be valued, and the type of valuation report to be prepared. Then, SBV will analyze historical financial statements, tax documents, as well as any future orientated financial information to prepare a detailed information request.
Upon receiving responses to the information request, we will work towards issuing a draft valuation report. The draft report will be reviewed with all engaging parties to ensure an adequate understanding has been obtained of the report, calculations, assumptions, adjustments and other factors included in the draft report. Once all questions and concerns have been addressed, the client will sign a letter of representation, at which point we will issue the report in final form.
We acknowledge the sensitive nature of company’s financial information and prioritize its confidentiality and safeguarding. Client-related data remains strictly confidential and is never disclosed to external entities without explicit consent. Our internal systems are fortified with firewall protection, regular virus scans, and stringent protocols governing the handling of client data.
The fair market value of your business can be determined using one or more of the following approaches to value:
The Asset Approach – Serves as a foundational component in a business valuation, establishing a baseline value often referred to as the “floor value.” This method operates on the premise that a prudent investor would assign a value to a business no greater or lesser than its adjusted book value. However, it does not account for the business’s future earning potential or intangible assets such as goodwill.
The Income Approach – Assesses the business’s worth by projecting its future economic benefits attributable to a prospective buyer. This approach factors in both the anticipated return on investment for the buyer and the associated risks inherent in realizing such returns. The income approach analyzes cash flows and applies a multiple in order to determine the value of the intangible assets of the business, represented wholistically as goodwill.
The Market Approach – Determines the value of the business by comparing it to similar entities within its industry. This approach posits that a prudent investor would opt for the investment with the lowest price, provided that all other metrics and risk factors remain consistent.
There are a few factors that can influence the timeline, however the typical timeline is approximately 1 to 2 weeks upon receiving the final requested information including complete responses to the information request and related follow up inquiries (if required). Assuming information is provided in a timely manner, the entire process is expected to take 3 to 4 weeks, all things considered.
While rules of thumb and EBITDA multiples offer quick insights and sometimes are a good secondary test of a fair value conclusion, they lack the depth required for comprehensive valuation analysis. They overlook crucial factors such as income taxes, historical and future capital investment, unique cash flow adjustments, strategic changes, balance sheet strength, and industry trends.
Moreover, the origins and relevance of these benchmarks may be outdated or unreliable. Valuing a business is a complex endeavor with unique intricacies and we recommend talking to a CBV before relying upon a rule of thumb or EBITDA multiple when making a decision in a potential transaction.
While we hold the accounting profession in high regard, it’s important to note that only a limited number of accountants possess the specialized expertise and additional professional qualifications, such as the Chartered Business Valuator designation, necessary for a formal business valuation. Furthermore, many accountants refrain from valuing their clients’ businesses due to potential conflicts of interest, even if they possess the requisite skills.
It is essential to recognize that an accounting designation alone does not necessarily confer proficiency in business valuation matters. The roles and expertise of accountants and Chartered Business Valuators differ significantly. Typically, accountants may engage our services to evaluate their clients’ businesses, and we collaborate closely with them throughout the valuation process.