Services Business Valuation

Accounting, Tax and Financial Services: Huntington Advisory Group

Valuation of a Services Company

Q1: How do you value a professional services company?

According to Suzanne Hooper at New Enterprise Associates [shooper@nea.com], "There's no easy answer. The bottom line is that every valuation exercise is different and there are many factors that affect it - including qualitative ones that you may not think about. For example: competition for the deal, applicable market growth potential, strong management and so on. Anything that reduces the risk increases the valuation. The less things you have in place to reduce the risk, the lower your valuation. Entrepreneurs need to remember that investors expect a certain return for the amount of risk they are taking, so potential future value and exit timing will affect today's value."

John B. Casey [jcasey@cais.com] believes that, "For all intents and purposes, [valuation] is like any other sales process. Valuation is negotiation. Valuation can either be viewed as a black art or as a negotiation process. I've found it more useful to adopt the "it's just another negotiation" perspective. The negotiating talents of the participants are a very significant factor, along with (of course) participants' ego and emotion. So my recommendation is to do a lot of pre-game preparation by looking at comps, case studies, and anecdotal advice you get from others, but to treat the negotiation process itself as the real playing field."

Roger W. Davis [rogerdavis@cc-link.com] has an even more pragmatic approach. "Valuing a service company is tough. There are no hard and fast rules. One way to look at it is this: imagine that in two years, you get run over by a truck. Your wife is now the major shareholder, but she wants nothing to do with the company. Do you want her to try to figure the value of the company so she can sell it to your partner? On the flip side: imagine your partner gets hit by a truck and you have to pay off his widow. How much? Those two extremes should help you find a comfortable number.

"Look at it another way: Say you are so successful Computer Associates tries to buy you out. How will you arrive at a purchase price? You might want to think about that now. You don't need a number so much as you need a process.

"You can hire a lawyer, accountant, or professional appraiser. Hell, hire all three. Pay them each $3, 000. They'll each give you a value loosely based on your answer to the following question: "Just give me a ball park figure for what YOU THINK this company is worth." One will tell you it is worth about 75% of that number, one will say roughly that number, and one will say about 25% higher.

"On the other hand, save your money and read a few books: Valuing Small Businesses and Professional Practices by Shannon P., Dba Pratt, Robert F., Cfa Reilly, Robert P., a Schweihs.

"Here are a couple of resources on the Web:

There are a number of methods used to determine valuation, but as discussed above, "it depends". It is probably best to use two or more methods. If several of the methods derive similar answers, this might lend credence to your valuation.

1) The comparable transactions method:

One recommendation in using the "comparable transactions" method is to put together a spreadsheet showing mean, median, high, low for revenue, EBIT, and net income of last twelve months for two dozen comparable software transactions. It's not rocket science, but when you've pulled the comparables together into a single spreadsheet you can really learn a lot about where you might fit into the spectrum. Check for these figures by looking at EDGAR filings. Comparables are a key to an analysts' valuation in any industry, and so are an important part of a netpreneur's homework for the negotiation. [John B. Casey, jcasey@cais.com; Sean Greene, sean@greentravel.com]


Wiley Shared Services: Adding Value to the Business Units
Book (Wiley)
2004-08-22 22:25:38 by JamesFlash

Need Assistance Valuing Hoboken Business

I'm looking for someone to provide me with some assistance in valuing a business I may be investing in shortly. This basic valuation must be based on the existing spreadsheets and certain contingent variables based on potential business projections. I would be willing to compensate a qualified individual $100.00 for their services and a detailed valuation report. If interested, please detail why you are qualified, what your availability is, and, if possible--please forward a resume.
Again, this is a Hoboken, NJ area business, and one face to face meeting may be required in either NJ or NYC

2012-06-06 22:37:36 by CO_Clutch

Fair value

The entirety of this issue hinges on the IRS definition of fair value "the price that would be agreed on between a willing buyer and a willing seller, with neither being required to act, and both having reasonable knowledge of the relevant facts."
Unless there is a market for the client from VC rounds, then the fair value would be based on your normal rates for the provided services unless you wanted to pay to obtain a supportable business valuation from either a CVA or ABV. You will also need to look at whether there is a risk of forfeiture retained subject to any ancillary agreements; if there is a risk of forfeiture it is not treated as a transfer, thus no income

2011-07-25 11:14:48 by GradeACPB

You know, just like all professional services,

There is a price range. It depends upon where you go and how much you shop. Yeah there are CPAs out there charging $300-$400 an hour. I know, I used to work for them.
But there are also many out there charging $100-$150 an hour and I've worked with them too. And then there are what's considered para-professionals like myself who charge $60 an hour. Or there are even some other bookkeepers out there who I know are charging $10-$20 an hour. Heck right now I know three CPAs who are happy to get all the work they can at $60 an hour.
Either you are wanting a very advanced service and not willing to pay for it or you haven't really shopped around enough

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