Frequently Asked Questions
ValuAdder is packaged in a single file, which includes the installation program. Once you have downloaded the file to your PC, simply double click on the file and the installation program will take you through the steps required.
The recommended system requirements are:
ValuAdder is built on industry-leading Open Source Software technology. As a result, you can run ValuAdder on most operating systems.
Our software development process includes rigorous testing throughout the product development cycle. We have tested ValuAdder extensively on the following computer operating systems:
ValuAdder comes with a full-featured Online Help system which acts as your learning and information center on small business valuation and deal making.
Whenever you have questions, click on the Help button at the bottom of the ValuAdder window to launch the help system.
Get familiar with ValuAdder using tutorials, or get a quick reference on any calculation.
All the terms used by ValuAdder are defined in the glossary for your convenience. You can also search for the terms of interest or consult the help system index.
ValuAdder also provides tips for the key business valuation terms. Point and rest your mouse cursor over the term, and ValuAdder will display a brief definition.
Take a look at this article in our business valuation Guide which describes the five steps to establish your business worth. The article talks about such key concepts as the premise and standard of business value, selection and use of the various business valuation methods and conclusion of the business value.
ValuAdder uses several leading valuation methods based on all three fundamental approaches to closely held business valuation:
Capitalized Excess Earnings is a classical asset-based business valuation method. First introduced by the US Treasury Department in the 1920's, it is the definitive way to calculate the value of business goodwill and total business value.
The Comparative Transaction Method method is behind the Market Comps Tab in ValuAdder. The method allows you to make quick market-based comparisons against businesses of similar type.
The Multiple of discretionary earnings method is used in the Earnings Multiple Tab for comprehensive income-based valuations. It is an example of the so-called Direct Capitalization business valuation methods.
The Discounted cash flow method, supported by the Discounted Cash Flow Tab, provides an investment-oriented valuation approach, focusing on expected benefits from business ownership.
The Net Present Value calculation, which is closely related to the Discounted Cash Flow method, adopts the investor's view of business value. It provides you with a very accurate way to determine if the business investment makes sound financial sense.
ValuAdder does not use the following business valuation methods:
Asset Accumulation method is perhaps the most recognized of the asset based valuation techniques. However, it requires substantial expertise in valuing the individual business assets and liabilities to arrive at an accurate business valuation. Business asset is viewed as valuable based on how well it puts money in your pocket. Hence, we believe that the asset, market and income-based business valuation methods used by ValuAdder best reflect the true value of the business, and how valuable the business assets are.
The Capitalization of earnings method is very common in valuing small business and real estate investments. The business value is calculated by simply dividing the Business earnings by the so-called Capitalization rate. While the calculation is simple, the challenge of the method is in determining the earnings and capitalization rate to use.
ValuAdder gives you the well-known Multiple of discretionary earnings method. This income-based, direct capitalization method provides an outstanding assessment of business value without the difficulties associated with determining the Earnings and Capitalization rate.
The Cost to Create method is used by some business buyers who have a start-up business idea but wish to avoid the costs, effort, and risk of building a new business. This business appraisal strategy produces a wide range of business valuation results, which depend on the details of the buyer's business plan, including projected start-up costs, time frames, and resources. We believe that the market and income-based business valuation methods powering ValuAdder offer more consistent, predictable, yet flexible approaches to closely held business valuation.
ValuAdder philosophy is to save you time and effort while serving as a reliable, fast, and easy to use business valuation tool. The focus of ValuAdder is on meaningful comparisons, and assessment of business as an income producing vehicle.
The Market Comps method conserves your time by offering a quick comparison of value against similar businesses. This helps you see immediately where a particular business fits within the price range.
The Multiple of Discretionary Earnings valuation gives you a comprehensive assessment of business value based on 14 broad-based criteria. By adjusting the valuation criteria, you get a solid idea of what the specific business is worth to you. If you are selling your business, you can decide what the business would be worth to your target buyers. The Multiple of Discretionary Earnings valuation helps account for the new owner's preferences, skills, and lifestyle goals. It is an excellent method for owner/operator managed businesses.
The Discounted Cash Flow method takes an investor's view of the business value. You can fine-tune the valuation to fit a specific acquisition scenario, based upon its risks and expected returns. This is the most precise of the income-based valuation methods.
Project cost refers to the sum total of the funds needed to complete a business acquisition transaction. Some key components to be included are:
You can easily account for the cash-based business sale by using the Discounted Cash Flow valuation. Simply add the expected gain from the business sale to the projected cash flow in the last time period you plan to own the business. If you plan to hold a note, enter the projected note cash flows in the post-sale periods you expect to receive them.
The Deal Check Tab in ValuAdder adjusts all debt components of the deal structure by a debt service coverage ratio of 1.25 when determining the cash flow target.
Using the Discounted Cash Flow Tab, you can easily account for both positive and negative cash flows in your valuation. Enter the negative cash flow values into the Annual Cash Flows field, enclosing the value inside the parentheses with a $ prefix, like this:
You have entered data that is not allowed in an input text box. ValuAdder automatically resets invalid input to a previously entered valid value when you tab over or switch to another text box. For example, if you enter a negative numerical value into an input text box that allows only positive numbers, ValuAdder will reset it to a positive value.
The ValuAdder integrated Help System has a number of Tutorials. The Earnings Multiple Tutorial contains a detailed explanation of the Multiple of Discretionary Earnings business valuation method, including suggestions on how to select each of the 14 multipliers.
Business Valuation based on Multiple of Earnings
Market Comps are based on statistical analysis of actual data derived from private business sale transactions. The Comps seek to establish a reasonable range of business value by using a ratio of the selling price to some measure of business economic benefit. Typical ratios are:
The choice of the ratio used for each business type depends upon which one is a more accurate predictor of value for the specific business type.
To refine the business value estimate for many business types, Market Comps in ValuAdder may require that you provide additional inputs, such as:
Note that the number and types of inputs required depend upon the business type you choose. For example, each calculation may automatically account for all business assets and require only that you provide the business revenue as input to estimate the business price range. ValuAdder enables the required inputs based upon your selection of the business type.
No. ValuAdder is a completely self-contained small business valuation and deal structuring application that does all the work. In addition, ValuAdder integrated Help and Information System offers you valuable tips and techniques on business buying, selling and business valuation.
Absolutely. ValuAdder Reports let you save all your business valuation, deal structure, or purchase financing analysis results in a number of industry standard file formats:
Of course, you can also print your business valuation and deal structure results as a professionally formatted report.
Yes. You can save any number of valuation scenarios with ValuAdder. Your inputs are stored in a file in the state-of-the-art XML format. Just click on a scenario file to open it in ValuAdder. Then continue your work right where you left off.
Yes. You can open any number of ValuAdder windows from the File menu. Perform your business valuation and deal structure calculations in each window, compare the results side by side, then save the contents of each window as your valuation scenario in a file for further use.
Absolutely! ValuAdder automatically displays the correct currency symbol based on your computer system geography settings. You can also change what currency you wish to use for your business valuation calculations easily. For example, here is the procedure to change the locale to the USA on a computer running Microsoft Windows®:
The Market Comps in ValuAdder rely upon the fair market value standard to determine the business value. The Comps are based on the comparative pricing data derived from actual sale transactions which involve similar business types. The reported business sale transactions are conducted on an arms-length basis that is consistent with the fair market value standard.
Check out other business value standards commonly used for small business valuation.
You can use the Discounted Cash Flow business valuation method in ValuAdder to translate the business earnings upside into an accurate indication of value.
Project the expected cash flows that represent the business earning potential over a required future period. Determine the discount rate that best reflects the risks associated with receiving these cash flows. Estimate the net proceeds you can expect to realize from a future business sale. Then use these inputs in ValuAdder to determine the business value today.
The Discounted Cash Flow is the preferred business valuation method when determining the value of young growing businesses and start-up companies.
Absolutely! The Discounted Cash Flow business valuation method lets you account precisely for the business earnings expected to occur at each point in time. ValuAdder determines the business value based on the cash flow stream you specify and the discount rate that reflects the risks you associate with receiving these cash flow benefits.
Take a look at how to build up the discount rate that best fits your business valuation situation.
You can use the Multiple of Discretionary Earnings business valuation method available on the Earnings Multiple tab in ValuAdder. In addition to applying the 14 key business valuation criteria, the Multiple of Discretionary Earnings method lets you directly account for the excess or non-operating business assets, such as the business real estate.
One way to do this is to appraise the business real estate separately, adjust the income statements for the fair market rent expense of leasing the premises, and factor the real estate into the business valuation as a non-operating business asset.
See how to recast financial statements to prepare for your business valuation.
Yes, indeed! ValuAdder offers several standard income-based business valuation methods. These methods let you determine the business value based on a number of financial and operational business performance factors.
As business performance varies over time, so does its value. The 14 valuation criteria in the Multiple of Discretionary Earnings business valuation method let you see how business performance in each area affects its value.
One of the key performance measures affecting business value is the business earnings track record. ValuAdder includes several financial recasting worksheets that help you determine key business valuation inputs starting from the company's historic financial statements.
You can perform the important steps of reconstructing the historic financial statements and generating forecasts. Using these tools you can see how the business's past financial performance and projected earnings influence its worth.
You have quite a choice of business valuation formula multiples under the market approach to valuing a business. All multiples are ratios that relate some measure of business financial performance to its potential selling price.
The most commonly used business valuation formula multples are based on business earnings, either its revenues or profitability. Here are the typical income-based valuation multiples:
You can also use asset based valuation formula multiples to estimate the business value. The most common multiples used for small business valuation are:
You may choose some valuation multiples over others because they allow you to better estimate the value of a specific business. For example, business price to gross revenue or net sales valuation multiples are frequently used when valuing young or growing businesses. These firms may have excellent earning potential but would need more time to achieve full profitability.
In general, it is a good idea to cross-check your business valuation results by using several valuation formula multiples.
ValuAdder market-derived Market Comps support 425 unique types of businesses and professional practices.
You can get quick and accurate business value estimates based on recent business sale comparables for virtually any business. Here is the brief list of the major industry groups:
If you are interested in a specific business market value coverage by industry, please contact us online!
Yes! ValuAdder financial recasting worksheets let you determine the company-specific risk premium by ranking the business across ten key risk factors:
Now you can determine the discount rate precisely to capture the overall risk of owning and operating the business. This is essential for getting a highly accurate business valuation.
See how to build up the discount rate for your business valuation.
By far the most common measure or standard of business value in small business appraisal is the fair market value. Fair market value is thought to be decided by the market participants - business buyers and sellers. Since many business valuation experts and business people believe that the market place is the ultimate judge of what a business is worth, fair market value is the de facto standard used in most business valuations.
Experienced business buyers may seek to realize strategic benefits through a business acquisition. When valuing a business for acquisition, such business buyers often apply the investment standard of business value. Unlike fair market value, the investment standard measures what the business is worth based on the business buyer's specific objectives.
You can estimate the business fair market value by comparing it to sales of similar businesses. One effective way to do so is to use ValuAdder Market Comps.
ValuAdder includes a set of business valuation methods that cover all three professionally accepted approaches to valuing a business: Market, Income and Asset.
All valuation methods in ValuAdder comply with these widely recognized business valuation standards:
There are a number of professionally accepted business valuation methods. Each method has strengths and weaknesses that make it especially suitable in specific business appraisal situations.
Many business appraisers regard the income-based methods such as the Discounted Cash Flow Method as the preferred way to value a company. This is due to the sound economic foundation of these valuation methods. They let you determine the value of a business based on its earning capacity and risk.
The market-based business valuation methods are often used to value established companies, especially when a business sale or purchase is considered. Comparing your business to similar businesses that have recently sold offers a good basis to estimate the so-called business market value - or its potential selling price.
Asset rich firms are often valued using the asset-based business appraisal methods. An additional benefit of these valuation techniques is accurate purchase price allocation. This can be important in order to reduce the taxes after the business is sold. One of such methods, the Capitalized Excess Earnings or the Treasury Method, helps you determine the value of business goodwill.
The best practice that is adopted in virtually all professional business valuations is to use a number of methods.
Absolutely! ValuAdder is engineered for portability. You have the flexibility of choosing any 32 or 64 bit computer system to run your business valuation analysis.