SB Partners

Valuation Update Program

Trevor Hood, Principal

For the majority of private business owners, their business represents the most significant asset or investment that they own.  Yet despite the significance, most business owners have a lack of understanding of the value of this asset.  Unfortunately, unlike investments in real estate, mutual funds or the stock market, there is no available market information or method that provides for a simple calculation of the market value of a privately-owned business.  While most business-owners normally only consider having a business valuation completed for a formal purpose such as a tax reorganization or litigation-related situation, they should also be considered as a strategic business or estate planning tool.

Before we consider their use as a planning tool, we should first answer the question “What is business valuation?” Business valuation encompasses the quantification of the worth of all or part of a business and includes an assessment of all assets and liabilities of a business that contribute to value including both tangible assets such as property and inventory and intangible assets such as brands, customer lists and business goodwill. In completing a business valuation, there are also three basic levels of reporting that can be completed and these are a Calculation Valuation Report, an Estimate Valuation Report and a Comprehensive Valuation Report. The differences between each of these reports relate to the scope and level of analysis that is completed in their preparation. The Calculation Valuation Report involves the least in terms of scope and level of analysis and the Comprehensive Valuation Report involves the most. The selection of one of these reports depends primarily on the expected use of the report but generally the Comprehensive Valuation Report is used for litigation purposes where it is used as part of expert testimony in court and the Calculation Valuation Report is used in limited situations where a “ballpark” determination of fair market value is required.As a planning tool, a business valuation can help to provide direction and focus to the business owner.  Some potential uses of a business valuation include:

  • Assessing the need for life insurance
  • Understanding value in developing a succession plan
  • Business sale planning
  • Retirement planning
  • Estate planning
  • Personal net worth determination
  • Key performance indicator for the business

Once an owner understands the potential value of their business, he or she can then start to answer the following questions:

  • How can I increase the value of my business?
  • When will I be financially secure and able to retire?
  • What do I need to do if I want to retire in the next three/five/ten years?

With the above needs for business valuation as a strategic tool, SB Partners has developed a Valuation Update Program that will not only provide business owners with an initial understanding of the value of their business but also with an annual update to allow them to measure their success in focusing on value drivers. The Program covers a three year period and is specifically tailored to the needs of the business owner. The tailoring includes a choice of an initial Calculation Valuation or Estimate Valuation and options such as the completion of a Personal Net Worth Statement along with the valuation of the business. In addition, the cost of the Program can be amortized to smooth the cost of the initial valuation over the three year period.

We are truly excited about the Valuation Update Program and believe that it will represent an excellent tool for any business owner especially those considering their business succession or estate planning.  If you would like to discuss how to use the Valuation Update Program strategically to ensure the value of your company, contact Trevor Hood, CA, CBV at thood@sbpartners.ca.

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Joanne Pellegrino, Accountant, Izumi Outdoors Inc.

"In the three years that Ive been dealing with SB Partners I have always found them to be courteous, thorough and professional. Their work on our annual statements and tax returns is exceptional and their expertise makes my job a whole lot easier."