Business Valuation

We certainly value quality over speed when it comes to something as important as a 409A valuation. Our standard answer to how fast we can provide a 409A valuation is 10 business days from when we receive the information we need from the client. We can complete faster if a hard deadline is required (e.g., upcoming board meeting). Most clients have the information we request readily available. However, other clients have the information spread between various executives and outside counsel. If time is of the essence, getting everything together can speed things up tremendously.

This is dependent on the individual company and can vary. Our Firm has the benefits of scale, technology, and excellent partners. By working with outsourced CFO services, cap table management services, and other partners, we cut significant time out of the process that most providers spend in the gathering and structuring of data. Although the price may vary depending on the individual situation, companies will certainly get the best possible price/value combination by working with Ryan Business Valuation either through our partners or directly.

The valuation process is dependent on the situation of the individual company. The general summary is that once a valuation service provider is engaged, they will need organizational, financial, and capital structure due diligence that most companies have available without much trouble. The difficult tasks are typically either a long-term forecast of financial results, or for early stage companies, an analysis of the cost to recreate the IP the company originally created.

The information required can vary depending on a company’s situation. The following is a list of items likely to be needed, along with the rationale for why they are needed and the situations in which they may or may not apply:

You will need to select a valuation date

Note 1: If your company has recently raised a round of equity financing, the valuation date selected by many clients frequently coincides with the close date of that round.

Note 2: In the absence of a recently closed equity financing round, clients often chose the most recent month close for which they can provide financials.

Provide a balance sheet as of the selected valuation date

Note 1: The balance sheet helps walk from enterprise value to equity value and is a key component of our financial due diligence.

Provide latest 12-month (LTM) operating results (income statement) as of the selected valuation date

Note 1: Market-based valuation methodologies look at multiples relative to LTM operating results, so if comparable transactions or comparable public company analysis is being used, an LTM income statement is critical.

Provide your most recent three calendar years of financials, including full year income statements, end-of-year balance sheets, and ideally full year statements of cash flows

Note 1: These financials are not directly used in valuation metrics, but they are important for Ryan Business Valuation to know our client and to use as a check on projected financials if discounted cash flow analysis is being used in the valuation.

Note 2: Many earlier stage companies getting valuations do not have three calendar years of results. Companies should provide what they can, as reviewing historical operating results is key as we perform the valuation.

Provide five to 10 years of projected operating results, along with expected capital expenditure needs, and what you believe any working capital demands may be to achieve the projections

Note 1: This is so Ryan Business Valuation can perform discounted cash flow (DCF) analysis. DCF analysis assumes the value of any asset is the present value of its expected future cash flows adjusted for risk.

Note 2: If the degree of uncertainty of future results is overly speculative and providing a forecast is not feasible, DCF analysis will not be needed.

Note 3: This is the hardest item for companies to prepare as most do not have this readily available. We can discuss the feasibility and applicability of this analysis with you for your company.

Provide your most-up-to date articles of incorporation or organization that reflect your current capital structure

Note 1: This is used by Ryan Business Valuation to know everything we need to know about the features of the various types of securities in the capital stack.

Note 2: On multiple occasions, we have received old articles. Ryan Business Valuation needs the latest and greatest, or at the very least, to understand exactly what the features are of all securities in the capital stack.

Provide a detailed, up-to-date capital table that contains full detail of all classes of the company’s capital stock

Provide full detail on the company’s option ledger, including the number of stock options currently outstanding, grant dates, and the strike prices at which they were issued

Note: A summary table may suffice, but the more detail you can provide, the better.

If the company has any debt, provide term sheets or all key information about the debt

Provide agreements or term sheets for any instruments convertible into equity

If there have been any recent transactions (most recent 12 months) in the company’s stock, provide all supporting information on those transactions

Note: This includes not only equity capital raises but also any known secondary transactions in the company’s equity.

The timing to an eventual liquidity event

Note: This is your best estimate and is typically between one to five years.

Estimate the number of stock options you expect to issue over the next 12 months

Note 1: This is used as part of the fully diluted share count per AICPA guidelines.

Note 2: This is another item that most companies do not have readily available, but providing your best estimate is needed.

Indicate if you intend to raise equity capital in the near-term (e.g., next quarter)

Provide a company presentation, executive summary, or detailed business description to help Ryan Business Valuation know your company well and select appropriate comparable companies for their analysis

Note: A kickoff phone call is also helpful in discussing your company’s business model and understanding current and future revenue and cost structure.

Ryan Business Valuation will do its own research, but as the executives operating your business each day, please provide what you feel are the most comparable public companies, and any recent M&A transactions of companies like yours of which you are aware

Provide your corporate business address

Provide contact information for your external legal counsel, if applicable

Note: This can help Ryan Business Valuation confirm its understanding of any technical issues (e.g., unique warrants, liquidation structures, or other securities).

Provide contact information for your audit firm, if applicable

Note: This can help Ryan Business Valuation confirm in advance that your auditor agrees with judgments like the appropriate valuation methodologies to apply with your situation.

Provide details on any items you feel impact the value of your business that may not have been captured in the other requested items

Note 1: For example, your company may have created intellectual property value that is not captured on your balance sheet.

Note 2: Frequently for very early-stage pre-revenue or beta-revenue companies, Ryan Business Valuation will work with a company to perform a cost to recreate analysis that captures what it would cost to recreate intellectual property created by the company.

Provide detail on any previous valuations performed on the company

Provide any additional thoughts you may have that may be important for Ryan Business Valuation to know as we perform your valuation (e.g., nonoperating assets that might be undervalued on the balance sheet or threatened/pending litigation)

This may seem a bit overwhelming, but most of the above items are either readily available without additional work or can be quickly discussed as part of a kick-off call with Ryan Business Valuation (e.g., valuation date, exit horizon, estimated options to be issued, etc.). Ryan Business Valuation will help make this data gathering process as simple as possible. Keep in mind that as with any analysis, the inputs are key to a quality output. The sooner Ryan Business Valuation gets this information, the faster you will receive your valuation.

By asking some simple questions, you can hone in on the right valuation date for your company and specific set of circumstances.

How soon do you need the valuation?

What is the most recent period for which you can provide financials?

If you are funding the business with venture investments, when did you close your most recent funding round?

If you are considering getting a valuation for a point in time more than a quarter in the rear-view mirror, legal counsel should be involved and approve of the decision to do a historical valuation. Generally, they’ll base their advice on how formal and firm (in writing) grant commitments were. Some will advise against it entirely citing an “abundance of caution.” We are not here to provide legal or tax advice, but we can valuate for any point if your legal and tax counsel are on board. You should be aware that we have the benefit of hindsight, which will inform the conclusion.

While every divorce is complicated, those involving marital estates with closely held businesses are especially complex to dissolve and distribute. Because of the unique nature of every company, businesses are often one of the hardest assets to value in the marital estate, and without a prenuptial agreement, the business is considered subject to distribution upon divorce. There are three ways in which a couple can handle a business during a divorce: co-ownership, sell the business and divide the proceeds, or buy-out the other spouse’s interest. Ryan Business Valuation is an independent and qualified valuation and advisory firm that provides expert opinion and valuations for collaborative divorce settlements.