Years ago, one of the partners at Providence-based Sansiveri, Kimball & McNamee LLP asked CPA Craig M. Bilodeau to do some research and put a value on a company for a client.

Bilodeau had never done it before. But once he dove in, Bilodeau realized the process of valuing a business fascinating. He’s been doing ever since. A 22-year veteran of audits, business valuation business consulting, he leads the firm’s growing business valuation and litigation support practice group.

PBN: Are business owners and buyers turning to firms like yours that provide business valuation services more often than in the past?

BILODEAU: I think we’re seeing more activity in our business valuation practice for a few reasons. First, with some of the baby boomers starting to approach retirement age, they are more serious about succession and estate planning. The choices for privately held business owners are to either provide for the next generation to take over the business or to sell the business in the open market. In either case, there is a need for a business valuation to be prepared. Another factor is the current state of the economy, which is forcing some business owners to consider selling because of declining earnings over a two or more year period, lack of working capital and continued tightening in the credit markets. This, in turn, has also generated interest from prospective buyers because companies may be purchased at lower values than a few years ago.

PBN: How do you manage the sometimes personal and emotional factors that come into play during a valuation tied to a divorce or stockholder dispute?

BILODEAU: You certainly can get caught up in some emotionally charged situations. I find it helpful to give the parties involved an overview of the business valuation process including what we expect from them and what they can expect from us. In many situations, you are engaged by one party, and in others you may be retained by both parties of a potentially contentious valuation engagement. It is important for the appraiser to keep an open and objective mind and allow all relevant parties to express themselves if it is pertinent to the business valuation process. At times, we must filter through the information that is provided, especially if it's based more on emotion versus reality, and determine its relevance to the valuation. In the end, a business valuation expert must be an advocate for their opinion of value and prepare a report that supports their opinion.

PBN: What is the process that you follow to value a business? Say the owner of a small manufacturing company approaches you. Briefly take us through the process.

BILODEAU: Once we are engaged, we provide the business owner with an overview of the valuation process and forward them a list of documentation and information we’ll need to get started. This list would include such items as historical financial statements, tax returns, business plans, appraisal of the company’s property and equipment, sales information regarding significant customers and by product line, schedule of compensation and perquisites for all officers, stockholder agreements, stockholder and board of director minutes, details of any transactions in the company’s stock, etc. After reviewing such information, we will then schedule an interview session with the business owner(s) to obtain additional detailed background information about the company. After performing additional research and analysis on the company’s industry and the state of the economy, we are in a position to start drafting the report. During this stage, we begin to develop a sense of the valuation methodologies that are to be considered and eventually settle on those methodologies that we feel are most appropriate for the subject company. After preparing a draft report, we meet with the client and review the draft with them to ensure the information regarding the company is accurate and to walk them through how we determined a value for their company.

PBN: How in-depth does a business valuation get? I’m assuming that it’s more than just the bottom line.

BILODEAU: Absolutely. Business valuation is part science, part art. Our objective is to obtain as much relevant information that we feel we need to understand the company such as its history and background, products and services, competition and barriers to entry, industry background, management and key employees, technological factors, and the company’s strengths and weaknesses. As you can see, although the valuation process certainly requires a critical analysis of the company's financial statements, our analysis goes well beyond the earnings of the company. Fortunately, the valuation profession is now supported by some well-run accrediting organizations, which has also led to widely accepted business valuation standards. A full-scope detailed report for a privately held company may typically include 50 or more pages of information and analysis necessary to support the conclusion of value.

PBN: At what point are businesses too small to making a valuation even worth while? What’s the range of types and sizes of businesses you’ve worked with?

BILODEAU: Any business generating revenues can be valued. Whether they require a full-scope detailed report, an abridged version referred to as a summary report, or a calculation of value report that summarizes the calculated value, depends on the purpose and users of the report. A full-scope detailed report is usually applicable for any size company where it may be scrutinized by the IRS, a judge, or “trier of fact” if it is prepared within the context of potential or actual litigation. A summary report or calculation of value report is usually prepared when a client is looking for a value for internal purposes such as if they are thinking about selling the company and want an estimate of its value without all of the information found in a detailed report. We’ve done valuations for companies in almost every industry, from seed and early growth stages to mature companies, with annual revenues ranging from $100,000 to $150 million.