Business valuation tips, updates and advice. Pick up a few suggestions on how to value a business. Feel free to browse the contents or share your thoughts by leaving a comment.
If you check the leading standards on business appraisal, all properly done business valuations require some sort of a report. In fact, the venerable Uniform Standards of Professional Appraisal Practice (USPAP) dedicate a complete Standard 10 to specifying the scope and format of a business valuation report. The idea is to communicate to others what… Continue Reading
For valuation of companies that pay income taxes at the entity level the business appraisal needs to take this into account. In a vast majority of professional business valuations you are likely to see, the local (e.g. state) and national (e.g. federal) income taxes are combined into a composite income tax rate. In the US,… Continue Reading
Asset approach, also known as the cost approach, is one of the three major ways to value a business. Formally, this approach relies upon the economic principle of substitution: The business value equals the cost of recreating an enterprise of equal economic utility. The idea is that two businesses that generate the same economic benefits… Continue Reading
The key assumption behind the market comparable valuation methods is that the value of a business is revealed once you see what similar companies sell for. If a piece of business equipment has been sold in, say, the last six months for $350,000 then it is likely that we can get about the same if… Continue Reading
Valuation multiples that relate business value to some measure of its earnings are among the most typical tools used in business appraisals. There are essentially two types of such valuation multiples: economic multiples that relate business value to its cash flow accounting multiples that use any of the well known business profitability metrics. Business appraisers… Continue Reading
S corporations are so-called pass through entities. The company itself pays no income taxes. Instead, the shareholders pick up their share of business earnings and put them on their own tax returns. This is big savings compared to the double taxation common with the C corporations. Pre-tax or after-tax earnings for your business valuation? When… Continue Reading
Are you considering valuation of a commercial building contractor firm? Check out these industry statistics: There are some 38,000 commercial and institutional construction companies, classified under the SIC code 1541 and NAICS 236220. These construction firms generate a combined $372.5B in annual revenues. The industry sector employs an impressive 654,178 of professional and administrative staff,… Continue Reading
When it comes to business valuation using the income-based methods, reliable business earnings forecast is essential. Given that all forecasts are at best educated guesses, which one should you choose to improve the accuracy of your business valuation? Two obvious alternatives are to either adopt the financial projections created by the business management or develop… Continue Reading
One of the most important things you can do in a business valuation is to determine the earnings basis. Most income and market-based business valuation methods take some form of cash flow as its earnings input. Since accounting measures of business earnings usually require adjustments, calculating the earnings basis right can make a major difference… Continue Reading
One of the most important choices you can make when valuing a company is the proper selection of earnings basis. The idea is to capture the true earning power of the company. In virtually all professionally done business appraisals the earnings basis is some measure of cash flow. Net cash flow – the choice of… Continue Reading
If you need to value a tour operator company, here are some key industry statistics to consider: Classified under the SIC code 4725 and NAICS 561520, there are 2,993 firms in the US alone. These tour operators generate a combined annual revenue of $4,397M with 32,125 staff. Yet the average tour operator business is a… Continue Reading
How do you reach a business value conclusion? Given all the various business valuation approaches and methods, you have quite a choice of tools to calculate business value. However, each valuation method you use produces a result that may differ from others. When it comes time to state the subject business value, how can you… Continue Reading
Why choosing the earnings basis in your valuation important? Consider this: Whatever methods you choose for your business valuation, proper selection of the inputs is critical to the accuracy of your results. This is especially important if you are working with the income-based valuation methods such as the Discounted Cash Flow. Why picking the right… Continue Reading
Why should you consider making a number of cash flow projections in your valuation? A related question: Do you plan to value a business using methods under the income approach? Then the discounted cash flow technique is likely to be high on the list. Using this venerable business valuation method requires that you forecast the… Continue Reading
Looking back at the first decade of the 21st century, you can see the investor psychology at work in setting the valuations of businesses and other income producing assets. Once the frenzy sets in, business valuations can rise to lofty levels rather quickly, at least in the short term. This is often driven by market… Continue Reading