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In this episode, Shelia Darby, Managing Director of Bizworth, discusses the importance of accurate business valuations in M&A transactions, the different valuation methodologies, challenges in valuations, best practices and ethical considerations, and the value of partnering with valuation professionals.

Resources Discussed in this Episode

• Aswath Damodaran resources on valuation and corporate finance: https://pages.stern.nyu.edu/~adamodar/
• Business Reference Guide: https://businessreferenceguide.com/
• Vertical IQ: https://verticaliq.com/
• Deal Stats: https://www.bvresources.com/products/dealstats
• Biz Comps: https://bizcomps.com/
• ValueSource: https://www.valusource.com/
• Peer Comps: https://peercomps.gvalue.com/
• Pitchbook: https://pitchbook.com/
• Brokerage Simplification Act Info: https://masource.org/resources/legal-updates/

Topic Discussed

Structure and Summary

This episode features an interview with Shelia Darby, Managing Director of Bizworth, who has over 25 years of experience in business valuations. The discussion covers the following key sections:

Introduction and Background

Shelia shares her background, starting in the corporate world at companies like Enron and transitioning to the middle market and Main Street valuations. She discusses her certifications and the importance of continuous learning.

Importance of Accurate Business Valuations

Shelia explains why accurate business valuations are critical for both buyers and sellers in M&A transactions, helping to close more deals and avoid leaving money on the table.

Valuation Methodologies

The three main valuation approaches are discussed: asset approach, market approach, and income approach. Shelia dives into the details of each approach, common methods used, and when to apply them.

Special Circumstances and Challenges

Various special circumstances and challenges in business valuations are explored, including non-operating assets, intangible assets, regulatory impacts, distressed businesses, and rapid growth or volatile businesses.

Best Practices and Ethical Considerations

Shelia shares best practices for valuations, emphasizing transparency, honesty, and using reputable sources. She also discusses ethical considerations, drawing from her experience on the Ethics Oversight Board of NACVA.

About Bizworth

Shelia provides information about her company, Bizworth, and the valuation services they offer to support M&A advisors and business brokers.

Questions/Answers

Throughout the interview, several questions were asked and answered:

Q: How did you get into the business of valuations, and what drew you to it as a career?

A: Shelia started in the corporate world at companies like Enron, working in valuation groups. She transitioned to Main Street and middle market valuations in 2014, finding it more appealing.

Q: Why is an accurate business valuation critical for both the seller and the buyer in the M&A process?

A: Accurate valuations help close more deals, avoid leaving money on the table, and identify gaps early on.

Q: What are the different valuation methodologies, and what should M&A advisors consider when looking at them?

A: The three main approaches are asset, market, and income. Sheila explains each approach, common methods, and when to use them.

Q: What are some common challenges you come across when valuing businesses, particularly in the small and medium enterprise area?

A: Common challenges include non-operating assets, intangible assets, regulatory impacts, distressed businesses, and rapid growth or volatile businesses.

Q: What are your thoughts on best practices and ethical considerations in valuations?

A: Best practices include transparency, honesty, and using reputable sources. Ethical considerations involve operating with integrity, avoiding conflicts of interest, and staying in your lane.

5 Best Quotes

Valuable Quotes

Here are five valuable quotes from the interview:

"If you don't get a proper accurate valuation, you're leaving money on the table. First of all, you're not closing as many deals as you can, right you're not identifying as early on as possible if there's gaps."

• Shelia Darby, on the importance of accurate valuations

"Honesty is the best policy. Transparency is crucial. It doesn't matter if you're an M&A advisor, an attorney supporting an M&A advisor, CPA, or evaluation professional honesty is the best policy transparency.”

• Shelia Darby, on best practices

"Make sure you're not making things up you're not feeling your way through everything it's one thing to have an intuitive gut. We all want to listen to our gut, but back it up with facts."

Shelia Darby, on best practices

"If you're going to spend a lifetime building up your reputation, don't lose it in 5 minutes that's that's the standard there, that you're going to have a long plus, very plus, you know, very you have lots of prosperity in your field if you just abide by those."

• Shelia Darby, on maintaining a good reputation

"It's OK to say you have a valuation professional supporting you. You don't have to be your clients valuation professional and CPA and attorney stay in your lane and be the best conductor to get their business sold."

• Shelia Darby, on the role of an M&A advisor

Tips Learned

Lessons Learned and Takeaways

This interview with Shelia Darby provided valuable insights and lessons on business valuations, including:

• The importance of accurate valuations in closing more deals and avoiding leaving money on the table.
• Understanding the different valuation approaches (asset, market, income) and when to use them.
• Recognizing special circumstances and challenges in valuations, such as non-operating assets, intangible assets, regulatory impacts, distressed businesses, and rapid growth/volatility.
• Best practices for valuations, including transparency, honesty, and using reputable sources.
• Ethical considerations, such as operating with integrity, avoiding conflicts of interest, and staying in your lane as an M&A advisor.
• The value of partnering with valuation professionals and experts when dealing with complex situations.

In summary, this interview highlights the complexity and nuances involved in business valuations, emphasizing the need for M&A advisors to have a solid understanding of valuation principles while also recognizing the importance of collaborating with valuation experts to ensure accurate and defensible valuations.