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The
Center for Financial, Legal & Tax Planning, Inc. |
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Other Valuation Links ·
Items Needed to Begin a
Valuation ·
Is There “Value” in a “Valuation”? Part 1 |
THE VALUATION REPORT Your client
has worked his/her entire life building the business. Now it is time to pass the business to the
next generation or sell it to an interested buyer. Knowing the value of a business before
selling it is critical. Asking too
much will not sell a business! Asking
too little will not maximize the value! Having
a valuation of a company done actually creates value. Not only does a valuation give you and a
willing buyer a price range to work with, it creates value by reassuring a
buyer that the company is actually worth the price paid. A
professionally written Valuation Report does more than estimate the value of a business
using rules of thumb or guesstimates.
Many people try to value a company by trying to use a multiple of 4,
5, or some other arbitrary number. Not
only does this not work for the IRS and tax planning purposes, buyers tend
not to be particularly impressed with these methods. Our firm uses valuation methods approved by
both the IRS and the IBA. Each valuation
our firm prepares uses up to four methods of valuation to determine a range
of appropriate values for a buyer and seller to use. The
methods used are described (greatly simplified) below: A)
Earnings Capitalization
Method – This method makes adjustments to the company’s income statements for
the past three years. The results are
then weighted and a value is derived using appropriate capitalization and
discount rates. B)
Underlying
Asset Method – This methodology looks at the balance sheet from a market
standpoint. Adjustments are made to
the book value of the assets and goodwill is calculated and added to the hard
assets to arrive at an overall market value of the assets for the business. C)
Cash Flow / Leveraged
Debt Method – This method looks primarily to the cash flow from operations
that is generated by the Selling Company. Adjustments are made in accordance
with unusual and non-recurring cash expenses from the operations over the
past three years. The results are then
inputted into a mathematical model to determine a value. D)
Comparables
Method – This method looks to other transactions involving both publicly
traded and privately sold companies wherein transactional data is
available. The selling company’s
figures are then compared to the transactional data which is comparable in
nature to the company being valued. A
value is then determined from the analysis of the comparison. When
a company is valued by our firm, a template of the valuation is made. Having a template allows the value of the
company to be easily updated in the future on demand. Buyers of a company can then acquire the
template to yet further increase the value of their acquisition by being able
to calculate the value on an annual basis. Contact the valuation specialists at
The Center for Financial, Legal & Tax Planning, Inc. for more information
about our valuation and other related services we offer brokers. |
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The Center for
Financial, Legal and Tax Planning, Inc. |
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Satellite Office: Longboat Key, FL |
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(618) 997-3436 Fax: (618) 997-8370 © Copyright 2005. All rights reserved. |
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