Internal Planning
Business owners want an idea of value for a variety of reasons.
Often, it’s helpful to know a business’s value before making a decision about how to proceed. Many of the Cogence Group valuations are for internal planning purposes.
The business owners could be contemplating a total sale, gifting shares to family members, setting up an executive incentive compensation plan, filing litigation, or setting up a share buyback program for current owners to “cash out”. It is helpful (arguably essential) to have a valuation or at least value estimate before pulling the trigger on any of the above.
When we perform a valuation for management’s internal planning, the scope of our work can vary widely.
We have performed:
Value Consulting – limited valuation procedures resulting in schedules which give an indication of the business’s value and subsequent discussions to educate of value drivers.
Calculation Engagement – the valuation analyst and the client agree on the methods and approaches that will be applied and the analysis is presented in a letter outlining the procedures performed as directed by AICPA VS 100.
Valuation Engagement – the valuation analyst provides an opinion of value, arrived at by applying the approaches and methodologies directed by AICPA VS 100. The procedures are then documented in a thorough valuation report.
For more information on the reporting requirements of calculation engagements, see this blog post: Calculation Engagement Reporting Requirements.
Depending on the size of the business and the contemplated action, each of the above scopes could make sense.
In a recent engagement for internal planning purposes, a company approaching 100 years of operations began thinking about how to allow some shareholders a buy-out. Given the history of the company, the shareholders were now second and third generation family members. Some members were actively working in the business, while others were uninterested. Given the size of the company, we performed a full valuation of the business (which had not been done for 10 years).
Cogence Group’s valuation informed management’s share price calculation and, ultimately, a buy-back program which provided liquidity to owners, reduced the number of owners, and reduced owner disagreement over company direction.
If you are thinking about a big change to your business, let Cogence Group help you with a value indication and consulting along the way. We bring over 30 years of experience to the table.