Silicon Prairie News

Midlands Venture Forum (MVF) continued its series of educational events on March 11 with a presentation from Chris Best, an appraiser for Best Business Appraisals, LLC. Best's presentation, What you Should Know About Business Valuations, highlighted the approaches and methodologies used by appraisers to value a business.

Here's more on Best from his company's website:

Chris started the firm in September 1999.

He has been appraising businesses since 1987 and has prepared more than 600 appraisals. Chris is a Certified Public Accountant that has been Accredited in Business Valuation by the American Institute of Certified Public Accountants.

In addition, he is accredited by the American Society of Appraisers as an Accredited Senior Appraiser in Business Valuation, and by The Institute of Business Appraisers as a Master Certified Business Appraiser.

Here's Best's presentation on business valuations: 

What you Should Know About Business Valuations

Here's an outline of Best's presentation:

• It's important to understand how an appraiser approaches your business through the following principles: 

Substitution: Understanding that the value of an item is determined by the cost of acquiring an equally desirable substitute. This involves using three methodologies: basis of asset-based approach, basis for the market approach and basis for the earnings approach. 

Alternatives: The buyer can walk and the seller doesn't have to sell. In the event of these decisions, each party has alternatives.

Future Benefits: The economic value of a business reflects the future benefits the business could generate, meaning that a buyer isn't going to invest in a company that doesn't reflect a possible future. 

• Each company has a seven-stage life cycle:

Seed stage: The company uses personal finances and grants to begin planning the business. 

Startup stage: The product of the company has been issued. The company is now looking to establish customer relationships.

Growth stage: The company begins focusing on the effectiveness of the product and the processes used to run the company.

Established: The focus is shifted to the productivity and efficiency, so the company can continue to make money.

Expansion: The company is looking to channel into new markets.

Mature: The company is now deemed established and is looking to maintain itself financially.

Exit:  The company might consider a new strategy to further evolve the company and transition into a new market.

• Each company undergoes an early stage valuation – at the seed stage – which is based on the amount of revenue the company has generated to function and the management of intangible assets. A company also undergoes a later-stage evaluation – at the exit stage – which is based on the company's sales to employees, sales to management and charitable contributions. This valuation also focused on the company's ability to continue producing revenue and productivity.