We follow Canada's governing legislation on business valuation.
As an introduction I would like to offer business owners and stakeholders a FREE VERBAL business valuation estimate.
If you need a ballpark value we will both need to invest some time and then my 25 years of experience and methodology will be able to help us.
I am certain that my verbal explanation of value will exceed your expectations. This perhaps will enable us do something more than just verbal in the future.
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You need accuracy regardless of the reason for the valuation.
The only way you could know a valuation report is accurate, is if the report can reasonably identify profiles of prospective buyers, and have a proven methodology to reach them with an estimated cost and time frame to close the deal.
How this is done and recent examples are below.
We conduct every business valuation as if there was going to be a sale of the subject business at “FAIR MARKET VALUE” as the tax act legislation in Canada and other countries require.
The legal definition of Fair Market Value in Canada, is the highest price, expressed in money, that property would bring in an open and unrestricted market, between a willing buyer and a willing seller who are both knowledgeable, informed, and prudent, and who are acting independently of each other and neither party being under any compulsion to buy or sell.
A 2023 Business Valuation Report using the Eric Jordan “25 Factors Affecting Business” methodology:
D. Estimates the value to all the tangible and intangible assets in a business.
ACCURACY is not possible without having an actionable plan that could find a buyer for the business you want evaluated.
The Eric Jordan “25 Factors” methodology:
(1) Will show profiles of the most likely buyers of the subject business.
(3) Will show some reasonable plans to reach those profiles identified.
(4) Will show a marketing team who is capable of executing those plans to reach the profiles and at what cost and a time estimate for when a sale should be expected to happen.
(5) Will identify a corporate lawyer who has competent staff, who will not drop the ball and who will push a sale through. That same lawyer should be a tax expert who can advise the client on tax issues regarding the business sale.
(6) Will direct you to fractional employees you can hire to bring this all together.
OUR VALUATION FEES ARE GENERALLY $3,500 to $8,500
Total SALE FEES range 3% if you want to follow through and sell a business. Show more information.
If you are planning to sell following this methodology and internal sale plan expect fees to range from 1% on large deals to 8% on small deals; INCLUDING ALL LEGAL FEES AND TAX PLANNING ADVICE.
In comparison the real estate agents, business brokers, and merger and acquisition people say they can only sell 25% of businesses they list for sale. (at any price) while charging fees of 10% to 18% without legal fees. And they still charge retainer and monthly fees. Link
Harvard Law Review states that according to most studies, between 70 and 90 percent of Mergers and Acquisitions fail. Link
According to Tax Act Legislation and Eric Jordan who developed the “25 Factors Affecting Business Valuation” methodology; we would go through the
25 Factors Affecting Business Valuation
Each factor has a link explaining why a Venture Capitalist Style valuation requires a valuator who has been in your shoes for 15 years or more owning and operating a business; and why other valuators generally don’t meet the “experience” criteria to begin training.
Business Valuation is our Business
However, we can and we will put business owners in touch with expert lawyers, fractional CFO’s and fractional marketing teams they can hire to sell their businesses effectively, efficiently, and in a timely manner usually between 3% and 8%. Yes, that does include legal fees.
We are focused on business valuations. But the valuations we produce are not hypothetical, but actionable as demonstrated below.
EXAMPLES BELOW PROVE OUR ACCURACY
2023 - Fees were 3% of total sale:
We have a case in point where, in the valuation process, we determined that the business owner had been a welder prior to opening the subject business. We determined that trenchers, plumbers, or welders would be good buyer targets.
We put the seller in touch with a marketing team we know. The marketing team bought the profiles of the trenchers, plumbers, and welders in the area. The marketing team had an outbound caller making sales calls to these potential buyers. There was other social media advertising put in place.
The client was put in contact with a corporate lawyer, who is also a tax expert, to facilitate the transaction. The business valuation, the marketing and advertising, and the corporate lawyer all total, on a sale of just under a million dollars, was in the range of 3% of the total sale. The buyer was identified in the first week, but it took four months for the deal to close. (The business sold for 100% of the valuation price and yes we can let you talk to the seller)
2023 - Sold for 100% of Valuation Report Price:
In a second case that was much smaller and a much different type of business, it was a different situation. The business valuation proved that the business was worth more money to the buyer than the seller and more than the agreed upon and accepted offer to purchase.
The valuation was structured so the bank could see proof of value and TD Canada Trust funded the business at 85%.
The secret is understanding how to prove the value of intangible assets in a business to the bank in a manner they can accept for funding purposes.
We work fot the buyer, the seller, and the bank so everyone can win.
October 2023: Same City but this time a restaurant:
BMO was able to give 85% Financing based on our Valuation Report
Late October 2023: Large Restaurant in a large city.
RBC based on our Valuation Report was able to give 85% finding on the sale.
Another Secret; We have a Loan Broker/Agent who understands how to present our valuation reports to the banks. Let us introduce him to you.
The Income Tax Act is the only known legislation governing Business Valuation across Canada. “FAIR MARKET VALUE IS REQUIRED.” All reasonable actions are taken to ensure its compliance with "Policy Statement on Business Equity Valuations," From Canada Revenue Agency, No: 89-3, Date: August 25. 1989. (Modified 2002-08-27)
The answer is almost the same in every western nation.
In Canada, Fair Market value is defined as:
“The highest price at which 100% of the tangible and intangible assets of an operating business would change hands between a willing buyer and a willing seller, neither being under compulsion to buy or compulsion to sell and both having reasonable knowledge of relevant facts.”
Within the “Fair Market value” legal definition, it states:
willing buyer and a willing seller, neither being under compulsion to buy or compulsion to sell.
The comparison sales data most valuators, brokers, and agents use in their valuation reports is from sales where the seller is pressured, financing terms are missing, or other flaws exist, and therefore don’t meet the “fair market value” legal definition.
Accounting based valuations without a methodology for measuring intangible assets have no way to measure the largest portion of private business value. (up to 90%)
By using Eric Jordan’s "25 Factors Affecting Business Valuation" to pinpoint the who, what, where, when, and how of the most likely "special interest purchaser" profiles; we succeed in identifying, measuring, weighing and placing a value estimate on the subject business that we have been able to prove accurate in 2023 sale example at 100% of valuation estimate.
IN ORDER TO BE COMPLIANT WITH THE LEGAL DEFINITION OF “fair market value” REGARDLESS of the valuation purpose, we must look at the business being evaluated as if it were being sold and be able to PROVE as best possible, what we believe this business would sell for, to what profile, how we would reach that profile, and an estimated cost and time frame. WE BELIEVE THIS WILL PRODUCE THE MOST ACCURATE VALUATION ESTIMATE POSSIBLE AND IS WHAT THE LAW REQUIRES.
The International Business Brokers Association claims they sell only 10% to 20% to 30% of businesses listed for sale.
They charge fees of 10% to 15% plus retainers and generally monthly fees.
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