How do I install ValuAdder?
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.
What are the system requirements?
The recommended system requirements are:
- Processor performance greater than or equivalent to an Intel® Pentium® D at 2 GHz.
- At least 2 GB main memory.
- At least 320 MB disk space.
What operating systems can I use to run ValuAdder?
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:
What help is available for ValuAdder?
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.
What is business valuation?
How do I value a business?
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.
What business valuation methods does ValuAdder use?
ValuAdder uses several leading valuation methods based on all three fundamental approaches to closely held business valuation:
- Capitalized Excess Earnings
- Market-derived business valuation multiple formulas
- Multiple of Discretionary Earnings
- Discounted Cash Flow
- Net Present Value
Capitalized Excess Earnings is a classical asset-based business valuation method. First introduced by the US Treasury Department in the 1920s, 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.
Which business valuation methods are omitted from ValuAdder and why?
ValuAdder does not use the following business valuation methods:
- Asset accumulation
- Capitalization of earnings
- Cost to create
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.
What are the benefits of the business valuation methods used by ValuAdder?
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.
What is the difference between the project cost and business purchase price?
Project cost refers to the sum total of the funds needed to complete a business acquisition transaction. Some key components to be included are:
- Business purchase price
- Working capital
- Closing costs
- Professional fees, including due diligence costs
- Any license fees required, taxes and other charges
What should I use as the seller’s discretionary cash flow (SDCF) in income-based valuations?
How can I account for gains from the business sale in my valuation?
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.
How is the debt service coverage accounted for by ValuAdder?
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.
Can I account for negative cash flows in my valuations?
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:($100000)
Why does ValuAdder reset some of my data inputs?
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.
How do I select the multiplier values in the Earnings Multiple calculation?
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.
What are the Market Comps and how do I use them?
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:
- Price to revenue
- Price to seller’s discretionary cash flow
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.
Do I need additional software to use ValuAdder?
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.
Can I save my business valuation or deal structure results with ValuAdder?
Absolutely. ValuAdder Reports let you save all your business valuation, deal structure, or purchase financing analysis results in two industry-standard file formats:
- Adobe® PDF documents for immediate viewing and email.
- CSV format, which you can import into your spreadsheet application of choice, like Microsoft® Excel®.
Of course, you can also print your business valuation and deal structure results as a professionally formatted report.
Can I save my business valuation or deal structure scenarios with ValuAdder?
Yes. You can save any number of valuation scenarios with ValuAdder. Your inputs are stored in a file. Just double-click on a scenario file to open it in ValuAdder. Then continue your work right where you left off.
Can I do several business valuations with ValuAdder simultaneously?
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.
Can I do my business valuations with ValuAdder in any currency?
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®:
- Click on the Start menu on your Windows® desktop. The menu is at the lower left corner of your computer display.
- Point your mouse to the Control Panel.
- Double-click on the Regional and Language Options item. Windows® launches a dialog box window.
- Choose the English (United States) from the list next to the Customize button.
- Click OK button on the dialog box.
- Now restart ValuAdder. It should display your currency values with the $ symbol.
What type of business value definition do the Market Comps use?
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.
How do I value a start-up or business with a substantial earnings upside?
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.
Can I use ValuAdder to value a business whose earnings vary a lot?
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.
How can I value a business with higher than normal asset base?
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.
Can I use ValuAdder to track changes in my business value over time?
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.
What business valuation formula multiples should I use?
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:
- Business selling price divided by gross revenue or net sales
- Business selling price divided by SDCF or net cash flow
- Business selling price divided by EBITDA, EBIT, EBT, gross profit or net income
You can also use asset based valuation formula multiples to estimate the business value. The most common multiples used for small business valuation are:
- Business selling price divided by Furniture, Fixture and Equipment assets
- Business selling price divided by total assets
- Business salling price divided by the book value of equity
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.
What industries are covered by ValuAdder Market Comps?
ValuAdder market-derived Market Comps support all major 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:
- Automotive services and dealers
- Business consultants
- Biotechnology firms
- Construction industry
- Educational services
- Energy sector companies
- Engineering, architecture, accounting, law and management firms
- Financial and insurance services
- Health care and social services
- Internet and technology firms
- Manufacturing firms
- Personal service businesses
- Professional practices including dental, medical and law firms
- Real estate
- Restaurant industry
- Retail businesses
- Securities brokers and dealers
- Software companies
- Transportation and communication services
- Wholesale and distribution businesses
- And many more
If you are interested in a specific business market value coverage by industry, please contact us online!
Does ValuAdder consider company-specific risk in calculating business value?
Yes! ValuAdder financial recasting worksheets let you determine the company-specific risk premium by ranking the business across ten key risk factors:
- Earnings stability
- Financial leverage risk
- Operating risk factors
- Customer concentration
- Product concentration
- Market concentration
- Competitive position
- Quality of the management
- Skill of employees
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.
What is the most common measure of value in 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.
What professional business valuation standards does ValuAdder comply with?
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:
- Uniform Standards of Professional Appraisal Practice (USPAP), Standard 9
- AICPA Statement on Standards for Valuation Services (SSVS)
- International Valuation Standards (IVS)
- US Internal Revenue Service (IRS) Ruling 59-60
What is the most accepted business valuation method?
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.
Can I do my business valuation on a 64 bit computer system?
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.
I have trouble opening ValuAdder worksheets in Excel.
ValuAdder worksheets use Excel macro functions to perform essential calculations such as the WACC iteration for the discount and cap rates.
Be sure your Excel settings allow the macros to run. Here's how:
- Open Excel.
- Click on the “File” menu.
- Click on “Options”.
- In the Excel Options window that opens, click on “Trust Center”.
- Click on the “Trust Center Settings” button.
- In the Trust Center window that opens, click on the “Macro Settings” section.
- Select the “Disable all macros with notification” option.
- Click the OK button.
Now, open the ValuAdder worksheets in Excel. Near the top of the Excel window, you'll see a message: “Security Warning Macros have been disabled.” Click the “Enable Content” button next to the message.
How are ValuAdder products licensed?
ValuAdder products are subject to our single user license.
What are the Market Data Sources recommended by ValuAdder?
I. Cost of Capital Data Sources.
Assessing your cost of capital is an essential part of business valuation.
ValuAdder adopts the established practice in the business appraisal industry of deriving key valuation data parameters from the public capital markets, including:
- Risk-Free Return - from the US Treasury yields.
- Equity Risk Premium (ERP) - from the Standard & Poor 500 Index returns, using the Implied Discounted Cash Flow (DCF) Model.
- Company size, Industry and regional Risk Premia.
These parameters are used in the standard Build-Up Cost of Capital Model by ValuAdder to calculate the discount and capitalization rates for business valuation.
II. In ValuAdder software, all Cost of Capital Data is organized in tables.
The data tables are located in the ValuAdder financial workbooks on a dedicated Page - Risk Assessment. The page is used to calculate the important discount and capitalization rates for business valuation.
The table contents can be edited as required.
III. Industry Valuation Multiples.
ValuAdder's Market Comps Tool uses a number of statistically derived valuation multiples by industry.
To derive the multiples, we use a combination of the industry-standard Comparative Transaction and Guideline Public Company methods under the market approach.
The source of the data is the EDGAR database maintained by the US Securities and Exchange Commission (SEC). You can access EDGAR freely online.
Private company acquisitions by public companies that fall under the regulatory filing requirements are highly relevant.
The data is used to calculate the valuation multiples, company size and industry risk premia.
IV. Advantages of EDGAR Database.
- Comprehensive, transparent and current Marked Comparables coverage across all industries and geographies.
- Consistent, GAAP standards compliant financial reporting.
- Company financials audited by professional accountants.
- Free access to the actual company and M&A transactions data records in the EDGAR database.
The Market Comps cover 425 distinct industry sectors arranged by the SIC and NAICS industrial classification codes. The sectors include the manufacturing, technology, business and personal services, retail, wholesale, distribution, education, health care, finance and energy sectors, among others.
The valuation multiples are designed for valuation of private small to mid-market companies with market capitalization under about $500M. This includes the vast majority of private businesses and professional practices.
The valuation results report the subject business value in the standard Low - Median - Average - High format.
V. Discounts for Lack of Marketability (DLOM) and Minority Ownership Discounts.
ValuAdder financial workbooks include the DLOM and minority discount data based on the following established methodologies:
- DLOM - restricted stock and pre-IPO studies.
- Control premia studies based on the premia offered in the M&A transactions by public companies seeking to acquire a controlling ownership interest.