Why you need an independent business valuation for an internal buyout

Thinking of selling your real estate business? It is important to understand its value first. Take a look at the benefit of having an independent valuation.

Thinking of exiting your business and considering an internal buyer? This can be a win/win as the person already understands your business and the way it works. You can also negotiate a gradual withdrawal from your responsibilities, depending on your preferences.

Often, business owners will engage an ‘insider’ to do their business valuation, especially when one partner is buying out another. This could be the CFO or your long term accountant.

However, a person who knows your business well will carry bias, even if they don’t intend to. They could over-value your business, making it difficult to transition out. They may even give the value too low because they know you want a quick sale.

There are a number of reasons to use an independent valuer:

An unbiased approach

Coming in with no prior knowledge, your business valuer will take a step-by-step approach. They will clarify how long the business has been operating and look to determine its goals without any background knowledge.

Acting independently, your independent valuer will also look into your business reputation. This is more difficult for an insider to do.

Your independent valuer will consider job descriptions, the conditions of your office and pay rates free of past-knowledge. This can lessen the risk of your business being under or over valued.

Finally, your employees will speak more freely to your business valuer if the person is independent. Having a prior relationship may trigger them to leave key details out of the picture.

Market knowledge

Your inside CFO or long-term business coach is likely to have a thorough understanding of your business. What they may lack is current market knowledge.

An independent valuer is unlikely to sit in-house with any rival business but they will have worked with a range of companies like yours. This gives them up to date insights into the state of the market and current values.

As with any business or property, the final sale price is only what someone is willing to pay. Values from three years ago mean nothing in the present day, particularly if economic conditions have changed a great deal.

Your independent valuer also has an idea of the short and long-term industry outlook. This will help them create a fairer price which you can take to market or to your business partner.

Plain and simple dollar figures

Even with the best of intentions, your financial team may have glossed over some important details which relate to revenue, profit, loss and liabilities when doing the day to day accounting.

An independent valuer will come in ready to go through the books with a fine-toothed comb. Having no prior knowledge of your business finances means nothing will be overlooked.

No double-dipping

Having someone internal value your business is likely to raise suspicions from a potential buyer. They may want to bring in their own party, but whose interests does this valuer represent?

It is best to work with an outside professional who can prove they have neither party’s interests in mind. This way you only need one valuer and you can shorten the timeline of the overall process.

Simplifying the final decision

You may want your business valued with a view to make a decision on whether to sell or stay on for a few more years.

By hiring a reputable business valuer who has experience in your industry, you can get a clear picture on whether now is the right time to sell. Knowing the minimum price to expect to sell for can expedite your decision-making and the negotiation process.

Having a professional valuation will also give the new owner financial insights which they can use to quickly drive the business forward, their way.

Using this kind of professional may incur an expense of a few thousand dollars, however it can pay off in the form of a smoother, faster sale process.  

BDH Solutions have been buying and selling rent rolls for over 30 years. Keep up with our latest listings here.