What To Expect In A Comprehensive Business Valuation Report
Transmittal Letter A
Valuation Summary B
Summary Description of the Company
Asset-Based Approach C
Balance Sheets Analyzed and Adjusted
Net Asset Book Value
Net Realizable Equity
Income Approach D
Income Statements Analyzed and Recasted
Historic Cash Flows
Discounted Future Cash Flow
Capitalization of Cash Flow
Market Approach E
Comparable Private Transactions
Comparable Public Transactions
Financial Analysis F
Risk Factors G
Premiums and Discounts H
IRS Revenue Ruling 59-60 Considerations I
Industry Outlook J
U.S. Economic and Interest Rate Outlook K
Local Economy L
Remember – “If you don’t know what it is worth, the other side of the table has you at a disadvantage” – so look into the opportunity of getting an affordable business valuation working for you today.
A Business Valuation independently appraises the value of closely held businesses of all sizes, often requiring the recasting of various financial items, and market analysis.
The Business Valuation presents valuable information in the manner and style expected by sophisticated institutional investors and their advisors, and is often used as an exhibit to a Business Plan or Private Placement Memorandum for:
Sale or purchase of a business,
Obtaining loans or equity,
Determining the best way to access capital markets.
References before engaging a Business Valuation professional may include one or more of the following:
► Business Owners
► Corporate, Estate and Family Law Attorneys
► Financial Advisors
► Investment Bankers
During the process of engaging a Business Valuation professional, consider what the person signing your Business Valuation Report has to offer in terms of:
● Valuation Credentials
● Educational background
● Track record with various regulatory authorities
● Timeliness of service
● Experience and expertise in valuation and your industry
There are a number of Business Valuation Standards (BVS) that provide requirements to the Business Valuation professional. Depending on the licensing authority, there are variations which are set forth at the end of this book. BVS are codes of practice that are used in Business Valuation. Each of the three major United States valuation societies has its own set of Business Valuation Standards, which it requires all of its accredited members to adhere to.
What To Expect In A Business Valuation
A conclusion of value reached by the Business Appraiser that is based upon the applicable standard of value, the purpose and intended use of the valuation, and all relevant information available as of the valuation date in carrying out the scope of the assignment. The conclusion of value reached by the Business Appraiser will be based on value indications resulting from one or more methods performed under one or more appraisal approaches.
Appraisers Provide Three Different Levels Of Assurance Or Comfort (See, ASA Business Valuation Standards © 2009 American Society of Appraisers*)
Appraisal or Valuation Opinion – Most detail, comprehensive and for any purpose and use.
Comprehensive or Self-Contained Reports provide an opinion of fair market value. The opinion of fair market value is the most precise valuation report. It calls for the greatest level of analysis and the most detailed searching and reporting to be performed by the appraiser. An opinion provides the highest level of accuracy and credibility. It is most useful for readers. The Appraisal Opinion Report provides the most reliable indications of value.*
Limited Appraisal Report – Methodology restriction based on time and resources, or use restriction that limits the reliance on the report and distribution to other parties.
The objective of a limited appraisal is to express an estimate as to the value of a business, business ownership interest, security or intangible asset. The development of this estimate excludes some additional procedures that are required in an appraisal.*
Calculation of Value Report – Least detail; provides an approximate indication of value based upon the performance of limited procedures.
The objective of a calculation is to provide an approximate indication of value of a business, business ownership interest, security or intangible asset based on the performance of limited procedures agreed upon by the appraiser and the client.*
Levels of Valuations
The nature and type of engagement will generally be one of 3 types, depending on the purpose and the intended use. While a Calculation of Value is sufficient for most needs, A Trusted Business Advisor seeks to provide the most economical service. Certain situations, such as ESOPs and SEC reporting, require a full opinion (per the Department of Labor, the Internal Revenue Service or Securities and Exchange Commission).
(If you would like the chart on the 3 types of engagements, please contact email@example.com and Michael will send to you.)
Written By Michael Gilburd (Part IV Of Book Series)