Business Brokers - Sell Business - Business Sales and Acquisitions - SunbeltNE

The previous post discussed how you can go about selecting the right evaluator to value your business before you plan to sell a business. This post we go to the next step: Understand the various business valuation methods.

There are many methods to find the value of business but the most popular methods adopted by professional and experienced business brokers are the following:

Letter of Opinion:

The Letter of Opinion is a restricted use valuation intended for small companies with sales less than $250,000. The report runs to approximately 10-12 pages and provides only a brief synopsis of how the valuation conclusion was determined. The basis of this valuation is a market comparison with like companies within an industry.

Value Analysis:

The Value Analysis is a restricted use business valuation designed specifically for the “main street” business with sales of $1,000,000 or less. The report is intended for “asset sale, financial buyers” and provides only a summary of how the valuation conclusion was determined. The basis of this valuation is discretionary cash flow, since most Main Street businesses are bought and sold on a multiple of annual cash flow. The value considers primarily historical and current financial performance and very little time is spent with the Balance Sheet.

Formal Business Valuation:

The Limited Formal Valuation is a restricted use business valuation intended for the standard small business with sales between $1,000,000 and $5,000,000. The report is intended for “asset sale, financial buyers” providing a detailed review of all aspects that were considered in determining the final valuation conclusion. The bulk of the report is financial analysis and the valuation conclusion is supported in much more detail. In addition to reviewing the company’s historical and projected earnings, the report also contains a detailed review of the Balance Sheet.

M&A Valuation:

The Mergers and Acquisitions Valuation is a comprehensive business valuation for transactional purposes and is developed in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP). This is a stock valuation and is intended for the middle market business with annual revenues in excess of $5,000,000, businesses that are expected to sell for more than $1,000,000, strategic acquisitions of niche businesses, and generally any business with significant growth expected in the future. The basis of the valuation is focused on future earnings and the selection of guideline companies comes from both the private and public markets.

IRS Revenue Ruling 59-60:

A USPAP governed valuation developed for litigation focusing on US Court Reviews, Cited Court Precedents, and in-depth analysis and research of minority and marketability discounts. This method is intended for Estate Tax, Gift Tax, ESOP’s, Divorce, and any situation requiring litigation. This valuation is normally used when the value of the stock is in question (minority or majority interest).

Now that we have discussed how to select the right business evaluator for your business and the methods of valuing a business the next logical step is to understand the business valuation process. The next post will discuss about the business valuation process.

Disclaimer : This blog is for information purpose only . It is intended to discuss in brief about commonly followed practice or industry-known principles, Applicability of this information is subject to change from time-to-time or differ from case-to-case basis. Readers are requested to verify their case facts with a qualified Business Valuation professional.