Business Valuation

     At C. J. Harris and Company we offer independent determination of fair market value for numerous purposes, including:

     Determining fair market value of a closely-held business demands two factors, the first being professional expertise. At C. J. Harris and Company, we offer our clients the experience and insight gained from the true determinant of value, the marketplace. In addition, we have research capabilities and resources that keep us at the front of the valuation field. Because of the current stage of development in valuation practice and the limited case law relating to it, it is essential that valuation firm stays abreast of current practices and that written opinions thoroughly support the positions taken.

     The second critical factor is independence and the need for it is multi-fold. First, law often requires it, as with Employee Stock Ownership Plans (ESOP's), where a valuation by an independent appraiser is called for, excluding any parties to ESOP transactions or any parties employed by or related to the company being valued. Second, contractual agreements often call for an independent, professional appraisal. Third, all parties are more likely to receive fair treatment with an unbiased, outside opinion of value. Fourth, courts give greater weight to formal appraisals and expert witness opinions as to the valuation of closely-held businesses.

     Other benefits arise from the valuation process, for a professional valuation provides not only an opinion as to the value of a closely-held business, but also an analysis of that business from a management consultant's point of view. Furthermore, as periodic updates are made, the appraiser becomes increasingly knowledgeable as to the economics of the individual business and the industry of which it is a part. As a result of knowing the value of a closely-held business, ownership can more effectively plan for mergers, acquisitions, reorganizations, a sale of the business, a stock option plan, an ESOP, etc.

The Valuation Process

1. Description of Assignment: The valuation process itself will depend on the purpose of the valuation and the nature of the value to be determined. For example, the preliminary valuation used in the marketing of a business may yield a different value than that for an equitable distribution involving a minority shareholder position. As such, the determination of purpose for the valuation and definition of value to be estimated is the critical first step in the process.
   
   
2. Appraisal of Economic Conditions: Economic conditions are studied at the national, regional, and local levels for their effect on the business. Economic trends and forecasts are weighed for their impact on the value of the business. Industry data is gathered to determine the direction and condition of the specific industry.
   
   
3. Appraisal of Industry: Information is gathered from trade associations, company ownership, business publications and numerous other sources. Value is affected both by the industry's condition and the company's position in it.
   
   
4. Fundamental Position of the Company: The business is analyzed from both a qualitative and quantitative point of view. This step involves close work with the ownership and management of the company as well as its support team of accountants, banks, attorneys, etc. Qualitative issues considered include the history of the company, physical facilities, markets and marketing strategy, strategic position, competition, customer and supplier relationships, product/service lines, and management structure. Quantitative studies include a thorough financial trend analysis, ratio analysis, and comparative analysis (in comparison to industry standards). Financial statements are scrutinized closely to determine the true earning capacity and value of the firm.
   
   
5. Determination of Value: Information from the above steps is used to determine the appropriate valuation methodology. Using our research capabilities, valuation experience, and knowledge of current practices and precedent, we select the method(s) that will best estimate the company's true value.