Why Use Us for Your Florida Business Valuation?

Nielsen Valuation Group provides business valuation services that are not just a “value on paper,” but reflect how real-world transactions work. We never use predetermined formulas or make projections based on loose assumptions.

Instead, we find the fair market value of the business in accordance with the principles of Internal Revenue Service (IRS) Ruling 59-60. We are a Florida valuation company that is in full compliance with all aspects of this ruling.

In the following paragraphs, we will explain what this means in practice for our appraisals and how it benefits you.

We Fully Comply with the IRS Revenue Ruling 59-60

If you look around at business valuation firms in Florida, you will be surprised at how many “professionals” do not even consider the importance of IRS Revenue Ruling 59-60. It even happens among the top firms.

For us, however, it is an important ruling and we fully adhere to it in our work. Not only is it a trusted and authoritative source, it is also important because it shows how valuations should be done to reflect real market transactions.

Fair market value is where a buyer and seller of a business can meet and agree on a price. This is important to understand when requesting an appraisal, whether you are a seller, a buyer, or need the valuation for tax purposes, litigation, an investment, or something else.

Undervaluation leaves money on the table. An overvaluation means the business is unlikely to sell. Anything other than fair market value puts you at risk of losing the trust of your counterpart in negotiations.

Unfortunately, many valuation firms use predetermined formulas that lead to incorrect conclusions about value, often far from fair market value. The IRS is clear that this is the wrong approach:

“No general formula may be given that is applicable to the many different valuation situations arising in the valuation”

“Valuations cannot be made on the basis of a prescribed formula.”

It is common to use standardized tables of capitalization rates in the calculations. This speeds up the process, but it is pure guesswork and oversimplification. This is what IRS RR 59-60 has to say about it:

”No standard tables of capitalization rates applicable to closely held corporations can be formulated.”

Business valuators who take such shortcuts charge a high price for a professional-looking report, but their calculations do not reveal the true value of the business because they have not examined the specifics of the business in question. The IRS says:

“Such a process excludes active consideration of other pertinent factors, and the end result cannot be supported by a realistic application of the significant facts in the case except by mere chance.”

Nielsen Valuation Group always takes a closer look at the business in question to understand what is really happening and to uncover its true value. We understand that each business is unique and that there are no one-size-fits-all approaches or prescribed formulas that can be used.

“Prior earnings records usually are the most reliable guide as to the future expectancy, but resort to arbitrary five-or-ten-year averages without regard to current trends or future prospects will not produce a realistic valuation.” IRS RR 59-60

We Begin with Clean Data: Normalization First

Every business valuation begins with normalizing the financial statements – the balance sheet and income statements.

This is important because the numbers in the financial statements cannot be taken for face value as the basis for the calculations in a valuation. Incorrect numbers will lead to incorrect estimates of value.

For example:

• Income statements need to be normalized because they often include one-time expenses or revenues that are not representative of the business. For example, the sale of an asset. It is also common for the owner to have incurred personal expenses on the business.
• The balance sheet shows the book value of the assets, but it often happens that the book value is less than the actual market value. Or, less often, the other way around. Sometimes liabilities also need to be adjusted, added or removed.

After we have done all the normalizations, the data is “clean”, ready to be used as the basis for a well-balanced business valuation.

We Select Valuation Approaches Wisely

Behind every business appraisal there are one or more valuation approaches. Using a valuation approach is not the same as using a formula. It is the framework for how the valuation is done.

There are three primary approaches:

• Asset approach: The net value of the company’s assets (assets at market value minus liabilities).
• Income approach: A valuation based on cash flow or earnings.
• Market approach: Based on what similar businesses in the area have sold for.

At Nielsen Valuation Group, we often use a combination of the income approach and the asset approach. Unlike many other appraisers, we never use arbitrary weights to balance different approaches. Instead, we combine them with fair market value as our goal.

“Because valuations cannot be made on the basis of a prescribed formula, there is no means whereby the various applicable factors in a particular case can be assigned mathematical weights in deriving the fair market value. For this reason, no useful purpose is served by taking an average of several factors.“ IRS RR 59-60

In some cases, a discount rate must be applied. For example, when the valuation involves a business in liquidation. We use our own calculations rather than theoretical references.

The Best Business Valuation is Always Customized

All of our Florida business valuations are completely customized to your needs. We consider the type of business, its circumstances and size, as well as the purpose of the valuation. This will affect our choice of methods and how we present the report.

We offer a free 30-minute consultation during which you can tell us about the business in question and the purpose of the valuation, as well as ask any questions you may have. This also allows us to provide you with a personalized quote and a customized valuation.

How Much is My Florida Business Worth?

Are you planning to sell your business in Florida?

Far too many businesses for sale go unsold. Sometimes this is the result of overvaluation by a business broker working on a sales commission. Sometimes, it is the result of arbitrary calculations based on predefined formulas or loose assumptions.

When you hire us for your Florida business valuation, we will estimate a realistic value for your business – what it is likely to be worth in an open and free market. This will help you find a buyer.

“Define fair market value, in effect, as the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts. Court decisions frequently state in addition that the hypothetical buyer and seller are assumed to be able, as well as willing, to trade and to be well informed” IRS RR 59-60.

We would like to take this opportunity to address two frequent misconceptions among sellers of businesses. Understanding them will help you set the right asking price.

• The first is about potential. Many business owners want to sell their business based on its potential. Buyers, however, will rarely pay for potential because the increase in price is their reward for the risk they are taking and the work and money they are investing in the business.
• The other is long-term risk. Many startup owners, as well as other small business owners, have a survival bias when negotiating with potential buyers or investors. They point to success stories like Tesla, Uber, Alphabet or Meta and argue that their business will follow a similar path and therefore deserves a higher valuation. Investors, however, know that startups have about a 1 in 10 chance of being successful in the long run, and they have to factor that into their offer.

If you want to sell your business, you will benefit greatly from an unbiased business valuation based on fair market value. It will help you avoid both of these mistakes and gain the respect of potential buyers in your negotiations.

What is survivorship bias? The illustration shows a World War II airplane hit by enemy fire. During the war, analysts studied returning planes to decide where to reinforce their armor. Because the engines, cockpit, and parts of the wings were never damaged, the analysts mistakenly concluded that those parts did not need to be reinforced. The truth was that the planes hit there had never returned. Hence, the term survivorship bias was coined.

Let Us Help You with Your Business Valuation

Nielsen Valuation Group provides unbiased, IRS RR 59-60 compliant business valuations throughout Florida based on how real transactions work. Contact us today for a free 30-minute consultation.

FAQ – Frequently Asked Questions