Valuation reports are important tools because they help validate and benchmark the true value of a business. When acquiring a business valuation report, make sure the valuation is built on a firm foundation that can withstand challenges. Finding the right company to value a business can make all the difference in obtaining an accurate and credible business valuation. American Fortune Business Valuations broad and unique expertise and experience in business valuations, merger & acquisitions and value maximization results in the creation of very accurate, defensible business valuation report. Because Business Sale & Acquisitions (Mergers & Acquisitions) is also our business, we have a practical understanding of market values. If you need a timely, accurate and defensible business valuation, put American Fortune Business Valuation Services expertise to work for your business or your client.
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American Fortune Offers Three Types of Valuation Reports.
How to Choose The Right Business Valuation Report?
Choosing the right valuation report depends on three factors: 1) The need and requirement for details. 2) How strongly will the valuation have to be defended? 3)The purpose of the valuation of a business.
Business Value Estimate This valuation report is specifically designed for business owners to provide a fast and easy estimate of value for a business. The report is based on a combination of 8 valuation methodologies, a comparative data that help verify the estimate of value. This report is not a professional valuation of a business and is not suitable for use in estate planning, divorce proceedings, buy-sell agreements, ESOP’s, IRS issues, or legal proceedings. The report is 38-41 pages. Price: $1,250. To view a sample Business Value Estimate Report – Request Sample
Calculation Of Valuation Report A calculation of value is NOT a Valuation (Appraisal) because the appraiser is not coming to a “conclusion of value”, but merely a “calculation of value” complete valuation (appraisal) since it is based on a limited amount of investigation and due diligence. Although a Calculation of Value does not meet USPAP or IBA Standards, it can be a very valuable tool for business owners, professionals or other purposes. This value report takes basic value drivers to produce a semi-formal valuation. It utilizes four to five valuation methodologies. This type of value report yields a moderately defensible valuation report. Typical uses for this report are: Assisting an owner, broker or m&a advisor to establish an initial asking price for the sale of a businesses, Estate planning, Business planning, Developing a “preliminary” value for litigation matters, Any matter where an “initial” or “calculation” of value is acceptable, Businesses with an EBIDTA of less than $300K. The report is 30-33 pages. Price: $2,300. To view a sample Calculation of Value Report – Request Sample
Comprehensive Business Valuation This type of report explains in full detail how the value was derived as directed by the Uniform Standards of Professional Appraisal Practice (USPAP) and American Society of Appraisers (ASA). A comprehensive business valuation incorporates broad and complex business reviews, financial reviews and analysis. This valuation is very accurate and defensible. It utilizes seven to ten valuation methodologies. This type of report is used for the following: Business sale, Acquisition or Merger, SBA or conventional financing, Estate tax or gifting purposes, Any matter where the intended users are “familiar” with the subject to be valued, When a accurate and defensible valuation is vital, Businesses with an EBIDTA of $300K or more. The report is 40-50 pages. Price: $4,000. To view a sample Comprehensive Valuation Report– Request Sample
Request a business valuation report by calling (800) 248-0615 or e-mail request to: email@example.com Count on American Fortune for expertise in: Business Valuation Services, Merger & Acquisition Services and Business Exit Planning.
How is a Business Valuation Report Performed?
From a general perspective, a valuation of a business is commonly viewed from a Fair Market perspective. The definition for a fair market of a business value is defined as the price at which a given business is sold between a willing buyer and a willing seller via a condition whereby the buyer is not under any compulsion to buy and the seller is not under any compulsion to sell, both having reasonable knowledge of relevant facts, and with both seeking their best self-interest. So how is the value of a business calculated? The value of a privately owned business depends on a number of factors including its financial strength and profitability, the strength of the industry, the economy, competitiveness, dependency of the business on the owner and future viability of the company. There are three common approaches used by certified business appraisers to perform a business valuation. The American Society of Appraisers has developed appraisal standards for the Asset Based Approach, the Market Approach, and the Income Approach.
The Asset Based Approach To Valuing a Business, sometimes referred to as the Cost Approach, is asset-oriented. Each component of a business is valued separately and then summed to derive the total value of the business. The book value of each asset must first be determined – original cost minus depreciation works for some assets, cash and marketable securities are valued at face value and inventory values vary by type. The value is estimated based on the cost of duplicating or replacing the individual assets. The next step is to adjust these values to reflect their fair market value, which results in an adjusted book value. Next, deduct liabilities – short-term debt at face value, long-term debt at a discount. Last, subtracting the liabilities from the adjusted book value results in the value of a business.
The Market Approach To Valuing a Business is based on an analysis of the purchase price of similar businesses in the market. Derived from Financial Statements, financials ratios are used to compare the subject company to other companies and then a set of appropriate multiples are developed to be used in the valuation. An earning period is then selected (usually the last 12 months, but may include up to 36 months) and earnings and cash flow are analyzed over these periods using the multiples. Then, a value is selected based on how the company compares with the others.
The Income Approach To Valuating a Business focuses on the earnings of the business. The value is based on an estimate of the income the purchaser could reasonably expect from the business. The computations of the valuation process generally determine that the value of the business is equal to the expected future income of the business divided by the rate of return. There are several income approach methods commonly used in business valuations today. They all use some selected level of earnings and match it to the corresponding conversion factor. When performed properly, each of the methods should produce similar valuation outcomes. The Multiple of Discretionary Earnings approach is widely accepted and is conducted in two steps. First, the discretionary earnings likely to be the same in the next one to two years is determined by either weight averaging of the last two to five years. Discretionary earnings is defined as reported pretax earnings, plus the owner’s salary, interest expense, depreciation and any personal expenses run through the business. The second step is to select a multiplier. The discretionary earnings value (used in step one) times the multiplier produces the value of the business. In conclusion, a Business Valuation expert will determine a relative weight to be assigned to each of the various methods. Sometimes one or more of the valuation approaches may not be relevant to a particular situation. Typically, the rationale used by the valuation expert will be included for the selection of weighting of the method or methods used in reaching the final value. To Properly value a business it is a complicated and challenging process. Consult with a professional business valuation expert that has technical and business experience, the ability to select the appropriate valuation techniques, and a thorough understanding of today’s tax laws, corporate finance and market conditions. An unbiased business valuation serves as a benchmark, minimizes ownership disputes and provides a realistic, credible and defensible business valuation for all companies.
Learn About All The Business Valuations Methods
Business Value by Comparables Price Method The comparable price method operates under the assumption that there are other companies comparable to the business being valued that are either publicly held or privately held that recently sold. The IRS suggests that when using this method, at least three comparable companies (business valuation companies) must be used. Once the comparables have been found, the net income, cash flow, EBITDA, and the Price/Earnings ratio is used to compute the benchmark value. The individual company values can then be weighted and an industry benchmark can then be established.
Business Value by Capitalization of Earnings Method The consensus among business valuation companies is that the capitalization of earning power is “the most important single factor in the business valuation of most operating companies, such as manufacturers, merchandisers, and companies providing various services.” At the end of the life of a company, the total worth of that company can be found in the ability it had to generate earnings. This method uses historical data to project future earnings. The method goes back through five years and projects the earnings potential for up to five years, using a growth rate, present value calculation, and expected earnings figures.
Business Value by Adjusted Book Value Method (Net Tangible Assets) This business valuation method, also referred to as the underlying asset value method is especially useful in valuing holding companies versus operating companies. Investment houses and real estate companies are examples of holding companies. This method is also useful for liquidation purposes because it provides the “adjusted” asset value which relates to the fair market value of assets. It is also useful in valuing capital intensive businesses that rely on their asset base to perform work and generate income. An excellent example of this is are construction companies. The company’s machinery is vital to their operations. This idea can be contrasted with a law practice whose income generating ability does not rest on physical assets of the firm but, rather, on personnel. The key to this method is to determine the fair market value of all useful assets versus the value as stated on the books of the company.
Business Valuation by Excess Earnings Capacity Method (Goodwill) This business valuation method is based on the theory that the value of a company is equal to the value of the net tangible assets plus the value of excess earnings (e.g.., goodwill, patents, trademarks, copyrights, etc.). Eight factors are typically considered when calculating goodwill: age of the company, employee turnover, the value of the suppliers and the products sold, market area, potential growth, inventory efficiency, company location, and banking relationships. Excess earnings attributable to intangible assets are the foundation of the value of goodwill. Once this calculation is made, the result is added to the adjusted asset value as determined above.
Business Value by Present Value of Future Income Stream Method(Leverage Cash Flow Debt Method) A variation of the capitalization of earnings method is referred to as the “Leveraged Debt Concept.” This concept takes into consideration the fact that an outside party may leverage an acquisition of the current company and use all of the income to pay the interest on borrowed money. Currently, the cash flow method is becoming more important in valuations as companies tend to “free cash”.
Business Value by Net Income Residual Approach or Dividend Paying Capacity Method This business valuation method looks at the income that is left over for the stockholders as it relates to a company’s return on investment. Effectively, it can be referred to as the ability of the company to pay dividends to the stockholders using income that is not needed to operate the business in the future. Dividends are based on earnings after taxes as they relate to investment (stockholder’s equity) at the beginning of the year. Dividends represent the after-tax earnings that are distributed to the stockholder instead of being kept in retained earnings to help finance future projects. This is a key method to determining what an investor would pay for participating in the operations of a privately held company.
Conclusion Several methods of valuing closely-held companies have been presented. Each method has its advantages and disadvantages. The appraiser must determine which methods are relative to a specific business and then take an appropriate weighted average of the business valuation methods chosen.
Business Value reports are governed by Business Valuation Associations & Valuation Standards. There are several Professional Valuation Services and Associations and the top two organizations are The Uniform Standards of Professional Appraisal Practice and The National Association of Certified Valuation Analysts.
Uniform Standards of Professional Appraisal Practice The Uniform Standards of Professional Appraisal Practice is regarded as an “umbrella” of professional business valuations services standards that is often appropriate for any appraisal, whether the appraisal is of real estate, personal property, a business, a business interest, or an intangible asset. Uniform Standards of Professional Appraisal Practice is promoted by the Appraisal Standards Board of The Appraisal Foundation. The organization was established to foster professionalism in appraising services through the establishment and promotion of appraisal standards and appraiser qualifications. The purpose and mission of the Appraisal Standards Board of The Appraisal Foundation is to promote the generally accepted services standards of the appraisal (business valuations) profession.” These standards generally accepted in both judicial decisions and in the professional literature.
National Association of Certified Valuations Analysts The National Association of Certified Valuation Analysts was founded in 1991; it focuses on valuations of closely held businesses performed valuations professionals. The National Association of Certified Valuation Analysts services issues standards for professional practice conduct and valuations report writing standards.
American Fortune is regarded by clients as one of the top experts to value a business in the USA. American Fortune has performed hundreds of online Business Valuation Report Services (Business Appraisal Services), exit planning, business sale services, merger and acquisition services and served companies in the following areas: Louisville Kentucky, Lexington Kentucky, Bowling Green Kentucky, Nashville Tennessee, Memphis Tennessee, Cincinnati Ohio, Dayton Ohio, Columbus Ohio, Toledo Ohio, Cleveland Ohio, Pittsburgh Pennsylvania, Baltimore Maryland, Indianapolis Indiana, Chicago Illinois, Detroit Michigan, Flint Michigan, Atlanta Georgia, St. Louis Missouri, Kansas City Kansas, Des Moines Iowa, Minneapolis Minnesota, Oklahoma City Oklahoma, Dallas Texas, Fort Worth Texas, Denver Colorado, San Francisco California, Salt Lake City Utah, Phoenix Arizona, Los Angeles California, San Diego California.
American Fortune Business Valuation Report Services, Corporate Offices located at 620 South Third Street, Suite 204, Louisville, Kentucky 40202, Phone: (800) 248-0615; email: firstname.lastname@example.org To learn more about our online business value services ask to speak with a business valuation expert. American Fortune Business Valuation Services is a division of American Fortune Mergers & Acquisitions