Gelinas & Company | Business Appraisals

Frequently Asked Questions

› 1. Does Gelinas perform business appraisals in my state?
› 2. How does Gelinas assure confidentiality?
› 3. How do you treat "extraneous" expenses?
› 4. What information will I need to provide?
› 5. Why do you need the owner(s) W2 form(s)?
› 6. How much does a business appraisal cost, and how long until it is completed?
› 7. Can I use rules of thumb to value my company?
› 8. Is book value a good indicator of company value?
› 9. Can I really expect to recieve much value out of my company when I retire?
› 10. Do values of privately held companies correlate with values of public companies?
› 11. How do I get started?

Does Gelinas perform business appraisals in my state?
Yes, we perform business appraisals all over the country, from California to Maine and everywhere in between.

How does Gelinas assure confidentiality?
We understand your concerns, and take the issue of confidentiality seriously. First, as appraisal professionals, it is our job to maintain confidentiality at all times. As such, all conversations, email correspondence, notes, reports, computer files, and financial data remain in our secure office at all times. Furthermore, we recommend that you send us information using 'delivery confirmation' services (such as FedEx® or UPS) for security purposes. Second, as part of our appraisal service, we conduct a client interview in order to clarify any questions that may arise after reviewing the financial records of the business. However, when we contact you to ask these questions, we practice discretion so no one is inadvertently made aware of our services to you. Finally, we do not maintain any type of mailing list, nor do we disclose your information to any third party. In fact, after we perform our services for you, you will not be contacted by us again. You will need to contact us if you require our services in the future.

How do you treat "extraneous" expenses?
A business appraisal involves many steps. One of the first steps requires "normalizing" the financial statements, so we can compare "apples to apples." Most businesses have some extraneous (non-operating) expenses. Examples include non-cash expenses such as depreciation and amortization, as well as, interest on debt, owner fringe benefits, one-time or extraordinary expenses, other miscellaneous expenses, etc. Under most circumstances, these non-operating expenses are added back to the bottom line to arrive at Seller Discretionary Earnings (SDE) which is used to compare one business to another...apples to apples.

What information will I need to provide?
For the Certified Business Appraisal, we require:

• The past 5 years of 12 month Profit & Loss Statements and a current Balance Sheet or the past 5 fiscal years of Profit & Loss Statements and the year-end Balance Sheet

• Owner(s) W2 form(s)

Why do you need the owner(s) W2 form(s)?
The owner(s) W2 form(s) are requested so that we may accurately determine owner's compensation and owner's payroll taxes and treat them as separate from the total payroll and payroll tax expenses. This also aids in properly normalizing the Income Statement to the one owner/operator standard.

How much does a business appraisal cost, and how long until it is completed?
The average price is between $3,000 – $5,000 and it takes two – six weeks to finalize.

Can I use rules of thumb to value my company?
Industry rules of thumb used by business owners to determine the value of a company usually give misleading results. Rules of thumb are formulas based on industry averages of companies sold using their sales price compared to either annual sales revenues or profits. As such, the actual sales price of an individual company is either higher or lower than the average. Seldom does a company's value fall right on the average. Furthermore, the value determination for a company up for sale will be different than the value determination for purposes of divorce or for an estate tax calculation. These determinations relate to the purpose of a valuation, which affects methodology and certain assumptions made by the valuator. All these distinctions impact value determination.

Is book value a good indicator of company value?
Book value is almost never a good indicator of the value of a business, and usually much lower than the true value. Book value generally reflects only the cost of the company's tangible assets net of depreciation and liabilities, ignoring appreciated asset values and company intangible values such as goodwill.

Can I really expect to receive much value out of my company when I retire?
Historically, owners of private companies have looked to cash flows and tangible assets for company value, with little consideration given to the goodwill of the enterprise. Consequently, at retirement they get less value than what otherwise might be possible, by selling only the tangible assets of the business or simply liquidating inventories and closing the doors. The fact of the matter is, much of America's wealth is tied up in privately owned companies and is attributable to business goodwill. These observations are further supported in a study of privately held companies conducted by Robert Avery and Michael Rendall at Cornell University and referenced by the Wall Street Journal in June 1996, with the following quote: "The greatest transfer of wealth in history will occur in this country over the next decade; an estimated $10 trillion is expected to change hands, and much of this wealth is tied up in family business stock."

Do values of privately held companies correlate with values of public companies?
Values of privately held enterprises are generally not comparable to publicly held enterprises for at least two distinct reasons. One: There is not a ready market of investors to buy stock in a private company. As such, in the value determination the valuator ofentimes deducts a "Lack of Marketablility Discount" from the company value determined to adjust for the cost required to take a company public and/or sell the business through a broker. Two: Most privately held companies are much smaller in size than public companies. This increases the risk of ownership, or investment, in the enterprise. Consequently, the expected rates of return used by an investor, or prospective owner, to value a privately held business are typically higher than returns anticipated with ownership in a public company.

How do I get started?
The best way to begin is to fill out our information form on the Getting Started page of our website. If you have additional questions, you can send us an email at cpagelinas@aol.com or, if you prefer, you can call us at 603.625.8931. We welcome any questions you may have, and look forward to serving you.