Calculation of Value – Business Valuation Report
Calculation of Value
Purpose of Report: Our “Calculation of Value” report is intended to provide an approximate “fair market value” of a business using data from actual sales of comparable business. Such data has been gathered since 1998 from over 7,000 small business transactions financed from SBA lenders, and updated with new data every day. This information has been harnessed to create a proprietary valuation tool that is considered a highly accurate, and less expensive, alternative to a comprehensive valuation provided by a 3rd party appraiser.
Scope and Intended Use of Report: The Calculation of Value report is intended to provide an approximate indication of value based upon the performance of a limited number of valuation procedures. The scope is limited in that many of the factors that affect the ultimate value of a business, such as the local and national economy, and the industry and its trends, may not have been extensively reviewed and considered.
This is not an “appraisal”, but rather a calculation designed to give the user an efficient and cost effective approach to determine the fair market value of a business. This estimate of value is a guideline and should not be construed as a replacement for a complete, comprehensive valuation conducted by a profession independent appraiser.
It is important to understand these three terms when reviewing a Calculation of Value report:
Type of Value | Assets or Equity | Control
Software has been used to analyze and compare
the subject business to similar businesses in its industry. To help develop
discount and capitalization rates, the following risks are considered in our Calculation of Value report:
Financial | Quality of Financial Information
Diversification | Management | Industry | Competition
Generally, the analysis of the company’s income statements and balance sheets is performed in order to assist the business appraiser in measuring trends, identifying the assets and liabilities of the company, and in comparing the financial performance and condition of the company to other companies in the same or similar industry. For our Calculation of Value report, we limit this analysis to the Adjusted Earnings, and Projected Earnings, as well as the assets & liabilities included [Adjusted Balance Sheet] of the subject company. Click HERE for a expanded explanation of this subject.
The Calculation of Value report is intended to provide an opinion of fair market value – based on a going concern premise with management operating in a rational manner, with a goal of maximizing owner value of the underlying assets. Although there are multiple approaches to value, we calculate three methods: (1) Adjusted Asset Approach (asset approach), Discounted Future Earnings Approach (income approach), and the Direct Market Data Approach (Market Approach). Click HERE for a expanded explanation of this subject.
Method #1: Adjusted Asset Approach
The asset approach is typically only used when the value of the business is heavily concentrated in its tangible assets or the business is not generating a high enough return on its assets to warrant “excess earnings” or “goodwill”.
Method #2: Discounted Future Earnings Approach
The discounting of future benefits to a present value is a theoretically correct method of value when investors are seeking a specific return on their investment.
Method #3: Direct Market Data Approach
The Direct Market Data Approach [DMDA] develops a value based on the transaction values for which similar privately held businesses have been sold.
Reconciliation of Values
Uniform Standards of Professional Appraisal Practice (USPAP) clearly indicates that an appraiser cannot simply take a mathematical average or make some other set calculation to arrive at a final value. Instead, “The appraiser must evaluate the relative reliability of the various indications of value. The value conclusion is the result of the appraiser’s judgment.” This approach is used to arrive at a final “Calculation of Value”.
Price for “Calculation of Value” report
While typical business appraisals often start at $5,000, the cost of our Calculation of Value report is a fraction of this cost. Click HERE to see a sample report. Contact Tom MacPherson, at the Charlotte office, for the cost of a Calculation of Value and what we need to prepare one.
The Summit Acquisitions Group — Business Brokers and M&A Advisors — specializes in the sale, appraisal, and financing of privately owned companies ranging in valuation from $750,000 to $25,000,000. Contact their offices in Atlanta, GA or Charlotte, NC for a free consultation.