Quantive’s Valuation Process and What to Expect

We get it; it’s daunting, especially if it’s your first time getting a business valuation. With a quick search on Google, you can probably figure out how to get one. However, the even bigger question Google fails to answer is: What does the valuation process look like?  

Quantive answers this question by running a tight valuation process to ensure a high-quality result. We consistently say that repeatable processes yield repeatable results.  

We feel strongly about this. Since our valuation process is crafted to yield consistent results every single time, this helps our clients understand what to expect throughout the business valuation process and when to expect it. Assignments from end to end can be completed in as short as 2-3 weeks and can be expedited as necessary.  

Quantive’s Valuation Process

Our concrete process allows us to consistently engage with many different industries. This is one of the top reasons that Quantive is trusted by small—and medium-sized businesses all over the United States.

Here’s an overview of our process:  

1) Data Collection

The actual request will certainly vary from case to case, but the core data request is usually somewhat similar. Ideally, we want to see a five-year period of data, with three years being the usual minimum. A typical request will include: 

• Company tax returns 
• Historical profit and loss statements 
• Year-end balance sheets 
• Profit and loss statement for the last twelve months (“LTM”) 
• Current year-to-date profit and loss statement 
• Current balance sheet 
• AR and AP aging 
• Customer demographic data 
• Management forecasts or budgeting (if readily available) 

Depending on the nature and scope of the assignment, we might also request other documents, such as the company’s buy-sell agreement, corporate formation documents, inventory data, and other necessary documents. 

2) Initial Analysis

Once we have data, our analyst team will conduct what we call a “first-pass analysis.” We’ll start looking at trends in the data, looking for variances, unusual items, positive and negative trends, and financial ratios.  

We’ll likely send you a detailed list of questions related to the data provided that we want to cover during the management interview. 

3) Management Interview

You’ll hear us say this again and again: the numbers only tell part of the story.  To understand a company, we must marry the narrative to the numbers.   At its heart valuation is about understanding the future prospects of the company.  It stands to reason that historical numbers- and, to a large extent, even a forecast- don’t give a full picture of future prospects.  To get that complete picture and an accurate assessment of value, we need to understand the story of how the company got to this point and the narrative of what is likely to come next.   

To tell the story, we’ll interview the client to gain an in-depth understanding of what drives the business. Our goal in this phase of the valuation process is to quantify the financial statements and, beyond that, understand both the value proposition and risk factors associated with the company.  

We’re looking to answer questions like: 

• How did the company get here?  
• Why is current performance where it is?   
• What is likely to happen next?   
• What are the risks?   
• Where is the upside?   

While the interview can be conducted on-site, we are often able to complete the bulk of the project via phone or video conference. 

4) Rinse and Repeat!

Sometimes, we reach this point and are ready to push to the finish line. In most cases, the management interview uncovers more questions, which results in more requests. We iterate this process until we have an adequate understanding of the company. 

5) Deep Dive Analysis Modeling

The appraiser will analyze the company’s normalized financial statements and use one or more of the approaches below. Our professionals will consider each model appropriate for the subject company. 

Approach to Valuation: There are 3 recognized approaches to valuation (with many models under each). They are: 

• Asset-Based Approach – What is the net worth of the physical assets of the business? 
• Market Approach – How does the entity compare to peers that have sold? 
• Income Approach  – What is the value of the ongoing “benefit stream” of the company? 

During the analysis phase of our valuation process, our professionals may also: 

• Review the buy-sell agreement for any controlling language or impairments to marketability and control 
• Conduct a comparative analysis of the financial statements 
• Complete any normalizing adjustment to the financial statements 
• Gather and analyze comparative market data 
• Develop an appropriate Discount Rate for the subject company 
• Determine required Discounts for Control or Marketability. 

To arrive at a final estimate of value, the appraiser will reconcile the values derived in each of the valuation methods and combine them with appropriate discounts. 

6) Document Findings

When a final valuation conclusion has been reached, and all relevant information has been considered, the valuation report is delivered to the client. We thoroughly explain the report to our clients and their advisers and answer any questions to ensure a thorough understanding of our conclusions. A typical report runs between 40-60 pages and will frequently include: 

• Summary Letter reviewing the valuation and findings 
• Statement of Limiting Conditions 
• Overview of Subject Company 
• Review of adjustments to financial statements 
• Detailed discussion of all valuation methodologies considered and used 
• Detail of valuation calculations and supporting data 

7) Brief Out

For most of our assignments, we’ll conduct a briefing with our client. (In some cases, this isn’t appropriate or necessary—think a “date of death” report for probate.) For the most part, though, we feel that the briefing is the most important element of the entire engagement. 

The Last Step of the Valuation Process: What Comes Next

A frequent discussion we have with clients is that the final number is less important than how we got there and what happens next.  

Consider that our work up until this point has likely created a road map for corporate value. Like all maps, this provides direction as to where we might go next. At Quantive, we understand the importance of getting from where you are to where you need to go.  

As a business owner, you know your business. To sell it successfully, you need to understand the numbers, too. A professional business valuation ensures that you get an accurate assessment of your company’s current worth. Since 2003, Quantive has performed over 3,000 business valuations. Contact our valuation specialists for a no-cost consultation today.