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.
The discounted cash flow method gives you the most versatile way to handle valuation under the income approach. Professional business appraisers, venture capitalists, bankers and entrepreneurs use this method to value all kinds of businesses and professional practices. Just about any business with a solid expectation of future earnings can be valued by this powerful… Continue Reading
Before setting out on a valuation of a retail pharmacy, consider these industry stats: Just in the US alone there are over 42,000 pharmacy businesses classified under SIC code 5912 and NAICS 44611. As an industry group these companies generate a total of $202B in annual revenues. The industry sector employs some 815,000 staff. The… Continue Reading
You may be confronted with the need to value a startup way before the traditional methods of business appraisal can be applied directly. A young company can represent considerable value despite current lack of earnings, uncertainty surrounding its unproven intellectual property assets, and little comparative data on which to base your value conclusion. Understanding the… Continue Reading
One of the key assumptions made for any business appraisal is the premise of value. Depending on the circumstances surrounding business valuation the results may differ greatly. The importance of the premise of value in business appraisal By far the most common assumption for valuing a business is that it will continue operating in the… Continue Reading
Before you can apply business valuation methods, you should determine the level of cash flows generated by the company. The question here is what cash flow? For the purposes of business appraisal, the net cash flow is the typical choice. Definition of net cash flow Net income, after tax Plus depreciation and amortization Plus tax… Continue Reading
If you discuss business valuation with a professional, chances are you will hear the notion of standard of value. Think of this value standard as a measuring stick the appraiser uses to come up with the business value. Selecting the correct standard of value can make a difference to the result. The circumstances and facts… Continue Reading
If you are valuing a startup chances are the company has not yet established a strong track record of significant earnings. The good news is business valuation is about the future expectation, not historic trends. So it is far more important that you demonstrate the earnings upside as the company grows. That’s one reason startups… Continue Reading
Why should you consider forecasting size premium when valuing a small company? Consider this: You can value just about any company using a number of income-based business valuation methods. These methods require that you provide two key inputs: Estimate of business earnings, usually in the form of cash flow A factor representing business risk such… Continue Reading
If you are valuing an established business the capitalized excess earnings method is an excellent choice to determine the value of business goodwill. However, use care when specifying the rates of return as your results may vary considerably. The method uses not one but two rates of return to calculate the valuation results. One is… Continue Reading
One of the common questions in valuing businesses of different sizes we hear often: Are there differences in value between companies of different sizes? If so, how does the difference factor into business valuation? Size matters in business valuation The fact is that when it comes to business valuation, size matters. This makes intuitive sense… Continue Reading
If you are valuing a private company risk assessment is one of the key steps. Business value depends on the company’s earning capacity at a certain level of risk. The greater the risk, the greater the returns should be to justify the investment. This risk assessment is typically represented by the discount and capitalization rates… Continue Reading
You may ask: if all business appraisers follow professional standards such as USPAP and SSVS, then how can business valuation results be so different? Why do business valuations differ despite professional standards? The reason is that clients who order business appraisers have a number in mind beforehand. The client wants a certain result and is… Continue Reading
Are you are valuing a business by using capitalization of income methods? Then you may have to be extra careful in selecting the right capitalization rate. Now the cap rate is just the difference between the discount rate, which captures the company’s risk profile, and the earnings growth rate over the long term. Common valuation… Continue Reading
If you look at the public capital markets such as NYSE or NASDAQ, the day-to-day prices are for non-controlling business ownership interests, usually a small number of shares. In other words, these per share prices represent the minority price. If you want to acquire a controlling share of the company’s stock, you will have to… Continue Reading
One of the most pressing questions that keeps coming up in business appraisals is the difference between values of companies of different sizes. And anyone can spot a difference between a multi-million dollar corporation and a small main street shop. Ask a professional business appraiser about this. And you will likely hear about the risk… Continue Reading