The 19 Steps of the Valuation Process

Valuing a closely-held business is a time-consuming, technically demanding task. The entire process generally takes a number of weeks, but the key steps are summarized below.

SPARDATA will keep the owner and his or her advisors informed via email or phone call throughout the process. Whether you want control of the process or just to see the finished report, you can be involved however you wish.

Steps in the Valuation Process:

Feature	Benefit to the Client
1. Initial Review of Documents	To ensure all necessary documents is on hand when needed, we involve the senior appraiser right from the start.
2. Initial File Setup	To ensure the process flows smoothly and on schedule, we input 50+ unique data elements when setting up the job.
3. Input 5 Years of Financial Data - Balance Sheet/Income Statement - Common Size	To understand how the business has evolved we input balance sheet and income statement data, and develop common size metrics.
4. Check Financial Data/Corrections	To ensure data accuracy, a verifier double-checks every entry.
5. Read/Review Company Website and Pull Data	To help us understand how the business presents itself to the public, we check the company’s website and other online sites.
6. Determine NAICS or SIC Code	To ensure we choose valid companies for our market comparisons we check the company’s NAICS/SIC to see if it is accurate.
7. Pull and Input RMA Data	The RMA database is an excellent source of information on the industry in which the company operates.
8. Industry Data and Research	We also use IBISWorld and other sources for industry research.
9. Economic Data and Research	To understand the local and national economic picture we utilize KeyValueData and other information sources.
10. Read and Abstract Legal Agreements	To understand the business’ governance structure we read and then abstract its shareholder agreement, by-laws, etc.
11. Financial Analysis and Benchmark Data	To permit apples-to-apples peer comparisons, we analyze and if necessary recast the company’s financial statements.
12. Pull and Analyze Market Data - Bizcomps/IBA/Pratt’s Stats/BizBuySell	To find valid transactions for similar companies we use BizComps, IBA, Pratt’s Stats, BizBuySell, BizMiner and other databases.
13. Initial Analysis/Develop Management Questions	To make the management interview efficient, we do preliminary valuations using different approaches and formulate questions.
14. Management Interview	The management interview is an opportunity for us to get input from its resident experts – the owners.
15. Public Guideline Multiples or Discounted Cash Flow	Larger companies (and rapidly changing one) are most accurately valued using time-intensive public guideline or DCF approaches.
16. Analyze Data – Develop Methods and Discounts - Develop Cap Rate - Asset Method/Intangibles - Capital Expenditures/Fixed Assets - Working Capital	Now we are ready to value the business: develop capitalization rates, quantify tangible and intangible assets, estimate future fixed asset capital expenditures, develop working capital requirements, and quantify marketability and control discounts.
17. Prepare Draft Report	The senior analyst prepares valuation first draft, then circulates it internally for comment.
18. Review Report	The final step is to share the draft valuation with the client and others the client authorizes, and revise as appropriate.
19. Prepare Final Report	We prepare and deliver a bound copy of the final report.