How the CFO Finds Value – May 2014

This topic concerns valuation.

In matters such as the purchase or sale of a business; goodwill; and asset impairment, valuation of the relevant asset(s) is crucial.  It is in these situations that the CFO plays an indispensable role.  Often, particularly as business owners near retirement, the CFO’s role of trusted adviser and confidante becomes even more important.  The CFO not only helps calculate a value, but also finds ways to create value.

While valuation is important, it is but one element of helping owners prepare for the sale of their company.  Others involve such matters as taxation;, financing, analysis of contingencies, and key employee matters.  That said, valuation is more often than not the key driver in the process.

The reason for this is valuation will be the focal point of discussions with important parties, notably buyers.  It is in this situation that the CFO can help create value depending upon the nature of the buyer — private equity, strategic buyers, family members or competing firms.  This value can arise from identifying cost synergies, uncovering new market opportunities, or leveraging new managers along with other opportunities unique to the transaction.  The CFO can devise the proper financing and provide the business owner an additional advantage as well.  In turn, these factors help the business owner determine the best route to pursue given his interest in such matters as lifestyle maintenance and disbursements.

Valuation is also important in addressing accounting issues such as goodwill, business combinations, and asset liquidations.  Decisions made about these matters affects proceeds received, taxation, and future income for the shareholders.

In sum, valuation is important in many business decisions.  In the larger picture, it helps retiring owners effectively plan their exit from their business.  Proper valuation also influences price negotiations, tax strategies, and financing decisions.    In each of these cases, a strong, knowledgeable CFO has extensive influence in helping the business owner make the optimal decision.

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