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Valuations can be invaluable Knowing your firm’s value can give you the upper-hand in transations, especially mergers and acquisitions; experts suggest bringing on a consultant to help manage the task.
Michael Strogoff, principal of Strogoff Consulting suggests: ❚ ❚ Start with a specialized consultant. There are plenty of good resources about how to value architecture, engineering or design firms. Consulting firms that spe- cialize in ownership transitions develop a fair-market value based on a handful of factors including adjusted net worth (book value), weighted net income, weighted net fees, projected fees, and backlog of unearned fees. These factors produce a range of a firm’s value. For example, some consultants value a firm at between one and one-and-a-half times adjusted net worth for an internal transition or between two and three times for an external sale. Other consultants value a firm at between three and five times weighted net income or apply a percentage of their average earnings to their backlog of unearned fees. The mystery is in how to nar- row these ranges to gain a more precise indication. “Firms that have recent and steady growth and a healthy backlog command a higher value than those that do not.”
By LIISA ANDREASSEN Correspondent M any A/E firm owners really don’t have a solid grasp regarding their firm’s worth. And, if you’re an owner, you can’t risk not knowing your firm’s val- ue. Whether it’s for external purposes, such as a firm sale or merger, or internal purposes, such as owner- ship transition or ESOP purposes, all firm owners should know what their investments are worth. HOW DO YOU START THE VALUATION PROCESS? Estimating the value of a privately held business is a complex disci- pline. Dannible/McKee and Associates Ltd. , performs valu- ation studies for design firms across the nation and reports that these are just some things to consider: ❚ ❚ Future earnings potential ❚ ❚ Growth rate ❚ ❚ Strength of the business’ balance sheet ❚ ❚ The capabilities and depth of your management team ❚ ❚ The competitive environment in which it operates ❚ ❚ The outlook for the markets it serves
See VALUATIONS , page 8
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