How to Value an Ottawa Business Reviewing a small business you want to purachase could cost $1,875
Doing a valuation on a SaaS platform (which I have done) could be $15,000.
WINNING IN COURT
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Need a Bulletproof Business Valuation?
"I greatly appreciate the work Eric did on the Valuation of my company. It stood up in court. (April 2017) The Judge soundly admonished the Chartered Business Valuator who tried to contradict Eric's valuation. If someone needs confirmation and wants to speak to me, Eric has permission to release my number." (Antoine)
Second Opinion on a Questionable Valuation?
"We find that most small business valuators concentrate on Asset, Market, and Income approaches developed in the 1970�s. These are generally easy to defeat in 2017 as most businesses are now made up of 50% or more in �intangible assets� these valuators neglect, or have no means, to properly measure.
This is the key Point: If someone is presenting or proposing a valuation without taking these factors into consideration the valuation number is likely to be misleading and almost certainly not accurate for a small business.
Return on Investment
How has R&D been accounted for?
Shareholder Agreement (if one exists)
Value of Employees (cost of recruitment and training as a group)
Client Base and Cost to Rebuild
Value of Supply Chain
Value of Distribution Network if one exists
Internet Presence and Use (social network)
Dominance if any in the Marketplace
Knowledge Base of Owner and Employees
Processes and Procedures Documentation (How well are all aspects of the company documented?)
Currency Fluctuations and Geopolitical Considerations
Leverage - Cost of money. Is leverage applicable and if so at what risk?
Minority Interest (if applicable)
Special Interest Purchaser (Partners are also special interest purchasers as they have more knowledge, interest, and opportunity, with less risk than regular buyers.)
How well is the business/practice expected to function with changes in management? (if applicable)
REMEMBER that before you apply the “25 Factors”, you need to be able to determine “Normalized Net Income” There is some information on that in my book showing how buyers and sellers can be defrauded by unscrupulous agents and brokers.
Reasons for a Business Valuation:
Example 1: Three partners have been working together for 7 years and now someone has to leave. This is a huge responsibility to find that correct measurement of value as it affects a lot of people’s lives. This allows me to really get into it and use all my knowledge and years of experience to find the right answer. Yes it sometimes keeps me up at night, but the end result is very satisfying for me.
Example 2: You are in a divorce situation and feel you are getting beat up. If my experience and knowledge are going to be able to make a big difference in your life, then this is something I could be interested in doing.
Example 3: You are considering buying a business. This is very often a huge challenge and my 30 plus years of experience in dealing with small business owners helps me to determine who is being honest, who’s information we might choose not to trust, and why. Again this work gives me the feeling of satisfaction when completed.
Who should pay for Valuation? - Buyer or Seller
There are three answers: (1) If the buyer is paying for the valuation my professional duty is to make sure I do a valuation that to the best of my ability deeply explore and exposes all of the risks the buyer might be assuming in a purchase while at the same time revealing the value for the buyer and not being unfair to the seller. I must be careful not to be so protective as to scare my client away from what could be a very good opportunity for them.
(2) If the seller is paying for the valuation my professional duty is to make sure I do a valuation that to the best of my ability deeply explores and exposes all of the opportunity the business offers and finding a price that the buyer would likely achieve in a sale properly advertised over a reasonable period of time. If I give my client a value that is too high it could hurt them and at the same time I don’t want my client to leave hundreds of thousands on the table. Read the book.
(3) In some cases Buyer and Seller split the cost. This will generally happen in friendly deals where both parties want the most fair price possible. In this circumstance, my job is to take into equal consideration both the risks and opportunities and find that fair market price.
BUSINESS VALUATION IS NOT A MATH EQUATION.
I wrote a book called “25 Factors Affecting Business Valuation”
You can download PDF on Amazon for $2.95 or email me for free pdf file at email@example.com
VALUATION EXPERIENCE - ERIC JORDAN
CPPA - Detailed Experience
My name is Eric Jordan. I am a CPPA which means Canadian Personal Property Appraiser. There are over 700 CPPA’s across Canada. I specialize in Business Valuations. The Canadian Personal Property Appraisal Group provides members a proper legal structure with which to do valuations. They do not give instruction on anything other than how to use the forms and templates they provide to make a legal appraisal or valuation report. I am providing the following information on my experience because experience is the key ingredient in my credentials and my experience is extensive, relevant and when combined with my proprietary system I describe in the book “25 Factors Affecting Business Valuation” allows me to deliver what many believe to be the most accurate small Business Valuation available in Canada today.
I was born in 1952 in Southwestern Manitoba. Like many other boys that were born on a farm / ranch I was a member of the local 4H beef club. The Canadian 4-H motto is “Learn To Do By Doing”. It was at the age of 12 to 15 that I received my first training in valuing or judging. My 4-H group provided a lot of training in judging cattle. Like business valuation the process involved many factors. I enjoyed this and did well at the judging competitions.
I got started in the construction industry at 16 learning about steel stud framing, drywall, drywall taping, acoustical tile, and other types of ceilings. I took training as an apprentice and at 19 years-old I was a sub trade foreman at the construction of J H Bruns Collegiate in Winnipeg Manitoba.
LEARNING TO LISTEN
I soon started my own business doing textured ceilings. I learned a lot of important lessons while running this business. The most important was learning to listen. I did specialized work. I would texture the ceilings in houses that were occupied as I had perfected a way to do this while protecting all the furniture and accessories in an effective and efficient manner. I would book work over the phone and set up a route that could take me from Manitoba to Alberta and back. One did not want to arrive at a house and find the work was impossible to do or that the owner was not likely to pay on completion. I was successful in that business. The key was to listen, listen, and listen. Asking the right questions and then listening carefully was critical to finding the correct information. Hearing the nuances became easy after a while. This is a very useful tool I use to this day while seeking information in the valuation process.
INTRODUCTION TO SMALL BUSINESSES
It was at about this time I got involved with the advertising business. I did advertising placemats across South Western Manitoba and Saskatchewan. If any of you are old enough and frequented Buddy's Steak Ranch on Albert Street in Regina, SK or Aunt Sarah’s Restaurant in Brandon MB. you may remember my placemats with a character called “Prairie Tom” in the middle surrounded by squares of advertising.
I don’t believe my creation died when I quit doing the placemats. A short time after that “Coffee News” publication started in Winnipeg, Manitoba and the character they use to this day looks amazingly similar to “Prairie Tom”. I believe I at least partially inspired the creation of that very successful publication and I am very happy for that. The placemat advertising business put me into hundreds if not thousands of small businesses where I got to deal with the owners. Great experience for my future valuation career as my eyes were beginning to open as to what really happened in a small business. .
AUCTION BUSINESS - Learning to See
In about the same time period I had a mentor Charlie Salfries who was sure that I should be in the auction business. I ended up doing about six auction sales in 1980 and held an auction license in Brandon Manitoba. This was a real learning experience for understanding value and being able to see and feel how live events work. Nobody understands value better than auctioneers. When the Canadian Personal Property Appraisers Group started in 1995 most of the first members were auctioneers from across Canada.
ONE ON ONE - With Hundreds of Small Business Owners.
The next business I got involved with was the movie business where I owned several rental stores and operated a movie broker business. In those days movies were a sideline to almost any kind of small business. I walked into thousands of small businesses and introduced myself. Hundreds ended up dealing with me. During this two to four hour process of dealing with the client on these video tapes, I really started to learn about what happened in a small business. Not all of the money went into the till. These business owners were happy to have someone to confide in. They would tell me amazing ways they saved on paying tax and all sorts of quirks about their particular business and industry. My experience extended to the US, as I purchased movies from small businesses then leased and sold these movies back into Canada. From this experience I could now understand what really happens on the ground in a small business as compared to what shows in the financials. This was invaluable one on one experiences with hundreds of different business owners across all sorts of industries. One can never learn these things in academia and I have a real edge on those who don’t have this type of experience, most especially those situations where bookkeeping is suspect or non existent.
PIN.CA - HELPING BUSINESS OWNERS ADVERTISE FOR BUYERS
Some video clients would tell me that they were selling so I should not leave movies with them as their business would be sold and gone by the time I was back in three months. My experience at that time suggested otherwise and I would ask them to just call me if they sold and leave the movies with a neighbouring business in the town. Two years later the business would often close down “unsold” and there would be an empty building for sale.
This is where I got the idea to set up an Internet showroom or catalogue of businesses for sale on the Internet. I was correct and the Pin.ca website has been successful helping business owners to find buyers for the past twenty years.
Working with hundreds of small businesses, advertising to the market place I got to understand about valuation. I had a client who was a Chartered Accountant who helped me to understand from the accounting industry viewpoint, how they look at valuing a business. I knew however that that was not the whole story. At about the same time I had a client who was a Resume Broker. He had a formula for getting inside his clients head and finding out what intellectual property they retained in their brain. He would write that into a resume and these people would easily find a job. I knew that same thing would work with a small business. A friend of mine Reid Nunn had spent a long time in the insurance industry and he taught me a lot about risk. Between those three things I was able to start to put the pieces together for doing an accurate business valuation and that was the beginning of the 25 Factors Affecting Business Valuation.
BITCOIN AND INTANGIBLE ASSETS
By 2013 I had my valuation process fairly well in place had spent thousands of hours researching intangible assets which I felt were the most valuable part of a small business. I was doing business valuations and I decided to test my process on the toughest intangible asset in the world “Bitcoin”
I purchased 78 Bitcoins and proceeded to test.
My process led me to believe the key element in Bitcoin was the “blockchain” and for the reason of the blockchain, I deemed that Bitcoin would have value in the future. I predicted $500 Bitcoin, $1,000 Bitcoin and the real possibility of much higher. I think everyone can agree my analysis was correct and Blockchain has proven valuable.
CPPA CERTIFICATION (National Accreditation)
This brings us to 2015. I had a formula and a lot of experience but I lacked the legal structure to present a business valuation to a court. That is when I reached out to the Canadian Personal Property Appraisers Group in London, Ontario. I got certified through them and became a CPPA. Now I had a proper legal structure for doing my business valuations. Canadian Personal Property Appraisers Group teaches you the legal structure you must use to produce a valid Valuation. The CPPA certificate for me now is really a mute point as my experience and the legal structure I use stand on their own.
BOOK AND FREE PDF
In 2017 I wrote the book “25 Factors Affecting Business Valuation” which gives a good overview of my proprietary process. It doesn’t teach you how to do a business valuation but it does let you know what must be measured.
Send an email to firstname.lastname@example.org and I will be happy to send you a free PDF of my book.
For those people who need Income Valuations done, I offer my experience dealing with thousands of small business owners across Canada. Hundreds of these were close business relationships forged over time. This combined with my credentials should put me at the top of any list for an INCOME VALUATION.
Experience is the key factor. I have done hundreds of business valuations. Numerous divorce proceedings across Canada have been concluded using my valuations, and filed with the courts. (including Quebec)
Eric Jordan (CPPA)
1 800 606 0310
Eric Jordan, President
Call or email now!
Multi Million Dollar Distribution Business- Valuation for purpose of sale.
Plumbing and Gas Business- Valuation for purpose of divorce proceedings.
Multi Million Dollar Eco Tour Business- Valuation for purpose of expansion loan.
Law Practice- Valuation for purpose of sale.
Lawn and Yard Maintenance business- Valuation for purpose of divorce proceedings.
Art Studio Franchise- Valuation for accounting purposes and CRA requirements.
Plumbing Business- Valuation for purpose of divorce proceedings.
Irrigation and Snow Removal Business- Valuation for purpose of divorce proceedings.
Large Retail Bakery- Valuation for purpose of sale to employee over 5 years.
Software Distribution rights in Canada- For Australian Parent Company (Agency Dispute.)
Janitorial Supply Business- Valuation for purpose of partnership dispute.
Tree Pruning and Lawn Business- Valuation for purpose of sale.
Battery Distribution Business- Valuation for purpose of sale.
Software Testing and Quality Assurance Company- Valuation for purpose of partnership dispute.
Blind Manufacturing and Installation Company- Valuation for purpose of legal action in partnership dispute. This went to court on May 27, 2016 and resulted in our client receiving over 80% of the amount he sued for.
Client is available as a reference.
Classic Car Renovation Business- Valuation for multi-million dollar lawsuit in Florida launched by Canadian partners.
Dance Studio- Valuation for purpose of establishing value for pending sale.
Cross fit GYM- Valuation for purpose of establishing a viable price for buyer to offer.
Jim�s Burger Location in US- Valuation for purpose of divorce proceeding.
Two Wholesale Bakeries- purpose of the valuation was to find values so the companies could merge.
Sign Manufacturing Business- Valuation for purpose of a minority shareholder leaving company.
Landscaping and Excavating Company- Valuation for purpose of divorce.
Day Care Facility- Valuation to support litigation and negotiation for damages inflicted by City in zoning error.
Accommodation Business- Valuation for purpose of sale.
Smoker Operation (8 pigs at a time in size)- Valuation for tax purposes.
Flooring Business- Valuation for purpose of sale.
Retail Wine Business (Franchise concept)- Valuation for purpose of sale.
Prop Business- Valuation for purpose of partnership buyout.
Computer Retail- Valuation for purpose of potential purchase.
Music Composer Business (original soundtracks for documentary movies and videos)- Valuation for purpose of divorce proceedings.
Two Pharmacy Locations- Valuation for purpose of sale consideration.
Luxury Bed and Breakfast combined with Events Business- Valuation for the purpose of sale.
Pool Building Company- Valuation for purpose of sale to family.
Automotive Related Business- Valuation for purpose of sale.
Specialized Manufacturing Firm within Printing Industry- Valuation necessary as someone expressed interest in purchase.
Daycare- Valuation for purpose of possible sale. (Interested Purchaser came forward.)
Focused Builder- Valuation for purpose of establishing value for employee buy in.
Software Maintenance Contractors- Valuation for purpose of possible merger, (many millions of dollars.)
Chiropractic Practice - Valuation for purpose of buy in.
Wholesale Food Business- Valuation for purpose of settling partnership dispute.
Accounting Firm- Valuation for purpose of divorce.
Call Centre- Valuation for internal purposes.
Hair Salon- Valuation for purpose of employee buy in.
Convenience Store and Gas- Valuation for purpose of lease dispute.
Specialized Builder of Restaurants- Valuation for purpose of employee buy in.
Wholesale Food Manufacturing and Distribution- Valuation for purpose of partnership buyout.
Retail Sporting Goods Franchise- Valuation for purpose of purchase.
Diesel Repair Shop- Valuation for purpose of partnership dispute.
Cellular Repair Company- Valuation for purpose of internal planning.
Roofing Company- Valuation for purpose of partnership consideration.
Upscale Personal Services Company- Valuation for purpose of internal planning.
Specialized Wheel Business- Valuation for purpose of sale.
How Financials Can Be Deceiving: (This is the kind of practical solution offered by our system.)
Accounting for tax purposes is totally different than interpreting financial statements for Business Valuation Purposes. Let us give you just one example: (Think Partnership or Divorce)
For tax purposes R&D is an expense in the year the R&D occurred. For the purpose of an accurate valuation the R&D should be amortized over a period of 5 to 12 years. HUGE DIFFERENCE.
The financials must be normalized to reflect proper treatment of R&D. If we didn�t do this a company could spend 95% (or all) of the profit on R&D and might successfully claim the company to be worth very little for a short period of time. Perhaps not fraud but certainly manipulation, depending upon the purpose. (Divorce or other partnership)
OUR UNIQUE BUSINESS OPPORTUNITY:
We need analysts in Ottawa and elsewhere; English and a second language would be an asset.
Become licensed to use our proprietary process in understanding the 25 Most Important Factors Affecting Value.
When a small publicly traded TSX (Toronto Stock Exchange) listed company needed a report on fair value to meet TSX requirements they turned to Eric Jordan...
JUDGES - LAWYERS - PARTNERS IN DIVORCE PROCEEDINGS PARTNERS IN BUSINESS DISPUTES - BUSINESS BUYERS BUSINESS SELLERS - CANADA REVENUE AGENCY
Bring the judge a valuation based on experience and logic. WHAT KIND OF BUSINESS VALUATION DO YOU NEED?
� FAIR MARKET VALUE - ONGOING OPERATION � FAIR MARKET VALUE - ASSETS IN PLACE BUT NOT OPERATING � ORDERLY LIQUIDATION � ORDERLY LIQUIDATION VALUE OVER TWO TO FOUR MONTHS
� INSURANCE VALUATION Are you insured for replacement costs of rebuilding a business after a loss including Intangible Assets? Have your insurer acknowledge and accept valuation prior to buying insurance. � Value of recruitment and training of a group of employees to the position of cohesively working together as they were prior to the point of interruption, damage or loss. � Value of rebuilding client base to where it was prior to the point of interruption, damage or loss. � Value of reimplementation of systems and procedures in place prior to the point of interruption, damage or loss.
� LOANS: Banks are losing a lot of business these days to lenders who understand intangible assets. Define the value of your intangible assets. If your bank is not considering the value of your clearly defined intangibles you need to find an new lender who is better educated in your business model.
Our Valuations are generally half price or less than others. This is possible because we are more focused on Small Business Valuations and not working for Corporations.
The niche we serve is Small Business Valuations with special expertise in understanding intangible assets that are often missed as they don't show up on the Balance Sheet. In addition to Financial Statements I take into account; processes, procedures, value of supply chain, value of distribution network, knowledge base of owner and employees, value of employees (cost of recruitment and training as a group,) value of client base, Internet presence and use, documentation and risk.
The rate of return on the real Normalized Net Income is always the first and last consideration.
Value to who? The bank, the seller, the buyer; our valuations can include more than one.
How to value an Ottawa business; the valuation or appraisal is a process. Once we have all of the information we need, via the intake conference, your valuation report will be delivered to you in approximately one week. We refer to our evaluation as a Value Statement.
WE COME AT THIS FROM FOUR DISTINCT VIEWPOINTS:
EXISTING ACCOUNTING: The view from an accounting perspective; relying on the the numbers created by the clients' existing accountant, then finding the real "normalized net income" through a proprietary process.
RISK: Looking from the insurance viewpoint and assessing risk to buyer.
HUMAN CAPITAL: From the point of view of a resume broker; assessing the value of the
human capital involved in the business.
INTELLECTUAL PROPERTY AND PROPRIETARY PROCESSES: Understanding, assessing and estimating the intellectual property and proprietary knowledge that is transferred with the business. Change of ownership and management does matter.
This is a 2 to 3 hour conference call that can include as many stakeholders as required.
As no two businesses are the same, the questions will vary.
Below is a list of some of the areas that we will cover.
(1) Why: What is the purpose of the valuation?
(2) Who: Value with whom owning and managing the business?
Your current value with current ownership and management?
Value with a new business owner with less experience?
Value with buyer like you with similar business management experience?
Value with an upscale buyer who has the financial ability to build on what you have accomplished in your business?
These WHO questions make a huge difference to the final appraisal.
(3) Normalized Net Income: I must understand what questions to ask to be able to determine the real 'Normalized Net Income.' This figure is seldom what you see in your year-end accounting, which is generally calculated to determine the lowest amount of tax legally payable.
Owners and families are often overpaid or underpaid depending upon individual tax situations.
What would the owner have to pay someone to fill his/her position in the business?
There are about twenty more normalizing questions that must be answered and these can be different depending upon the answers given to previous questions. This is where experience counts.
(4) Leasehold Improvements: These need to be covered regardless of whether the building is leased or owned.
It is important that the right questions are asked in any comprehensive appraisal.
(5) Hard Assets: Determining fair market value.
Book value means nothing if we want to know the true value of the business.
(6) Intellectual Property: Copyright, Proprietary Processes, Business Operation Manuals. These are your operating manuals; the step by step instructions on how to run your business and how to train others to operate your business. This greatly affects value; positively if it you have them and negatively if you don�t have them, and much more negative if it would not be possible for you to have a practical manual that would allow for your business to continue if you were unable to function.
(7) Value of Cash Flow: This is calculated by finding the normalized net income then multiplying it by a ratio determined by risk, opportunity, and the intellectual property affecting the means to produce.
(8) Soft Assets: Do you have intellectual property that has fair market cash value outside of your business?
(9) Risk: What are the possible risks to your business?
No appraisal can be completed without properly understanding risk.
If the owner of the building also owns the business has the rent been paid at market rates?
Are you in a one industry area, or is the area changing?
Are industry trends your friend or enemy?
Are there any Government regulations?
Competition and pricing challenges?
Changes to accessibility? Road changes?
How good is the succession plan, and do you even have one?
Operations and Training Manuals - How complete?
Additional questions depending upon the answers given.
Once we have all of the information we need, via the intake conference, your valuation report will be delivered to you approximately one week from the time we receive the financials.
As you can well understand, no computer program, gross sales or other rule of thumb guessing techniques are going to be helpful for you in determining the real value of your business. In fact, these techniques could harm you. Valuation and appraisal is our full time business. We do a lot of business valuations.
Return on Investment is Always My First and Last Consideration