Owners of Independent telecom companies should have their businesses valued by a company that specializes in that task five years before they want to sell it. That was the advice of Allen Oppenheimer, president of business brokerage A.M. Oppenheimer, addressing attendees of a VIP lunch at the Insights conference presented by Telephony Magazine at NXTcomm on Monday.

“Owners should start five years ahead of when they want to exit, rather than waking up and finding the company is not worth what they think it’s worth,” Oppenheimer said.

When a company like A.M. Oppenheimer estimates the value of a company, it recasts financial statements for the last three years to eliminate non-recurring expenses such as one-time lawsuits and to eliminate discretionary expenses, such as unnecessary travel. Equipment is valued at its replacement value. A big mistake that owners sometimes make is to believe that if they purchase new equipment, it adds to the value of the company, Oppenheimer said, but often that is not true.

As part of the valuation process, a company like Oppenheimer also forecasts future sales based on historical growth and trends, the size of the market and the competitive environment. “This is used to substantiate the future potential of the business and good will,” Oppenheimer said.

An important part of the valuation process is identifying opportunities to enhance future growth. “We suggest marketing enhancements,” Oppenheimer said. “We need to show the buyer how we will increase revenues to the levels we are forecasting.”

After completing the valuation process, a company may determine that it would be better to sell the business right away, rather than to wait. Conversely, Oppenheimer said, “Sometimes we work with a company for five or more years to increase its value before a sale.”