The Small Business Valuation Book: Easy-to-Use Techniques That Will Help You Determine a fair price, Negotiate Terms, Minimize taxes
Lawrence W. Tuller
Format: PDF / Kindle (mobi) / ePub
How much a small business is worth can be difficult to determine, but when a business is about to change hands, a fair and objective valuation is crucial to the sale. This book is an invaluable resource for business owners or buyers looking for accurate small business appraisals. This completely revised and updated book outlines the major valuation methods, including discounted cash flow, excess earnings, asset value, and income capitalization. This edition includes completely new material on the following topics: exploring the 8 myths of business valuations; using the Internet for research; and advice on startups and first generation service businesses. With this book, appraising a business has never been easier?or more accurate!
Those who advocate this method ignore the fact that earnings of multibillion-dollar conglomerates operating in a wide range of industries bear little similarity to the earnings of a micro business. Nevertheless, whenever we have a buoyant stock market that pushes P/E ratios to unrealistic levels, there will be some business owners who continue to argue that this method is the only realistic way to value their businesses. Comparing Results The four methods commonly used to value micro businesses
some yardstick must be used to determine whether goodwill exists at all, and if so, whether it is worth considering in a business valuation. In general, the same qualitative criteria used to evaluate the market demand for any business can be applied to professional practices and personal service businesses. Competitive Market Position How many similar businesses compete for the same market? In rural communities, professionals of almost any class are scarce. However, Manhattan has thousands of
days sales Although such data will probably be incomplete, it should help you make at least gross comparisons. Buy/Sell Data So far we have dealt with data sources related to securities of publicly traded companies and industry financial ratios of privately held companies. More definitive data that pinpoint exact business values can be derived from the actual selling prices of companies, subsidiaries, divisions, or product lines. This is the ultimate comparison for buy/sell valuations.
order to develop standards that would reflect appropriate discounts for minority interests in public companies. Of course, millions of shares are traded on exchanges every day, nearly all representing minority interests. However, in most cases, the stock of public companies is so widely dispersed that no one holds a controlling interest. Therefore, market prices per se, or market averages, were useless for determining minority interest discounts. In many cases, however, corporate takeovers
4Year 5Year 6 Sales 2,190 2,256 2,323 2,393 2,465 2,539 Cost of sales 1,260 1,308 1,348 1,388 1,430 1,473 Gross profit 930 947 976 1,005 1,035 1,066 % of sales 42% 42% 42% 42% 42% 42% Selling expenses 420 433 446 459 473 487 Commissions 44 45 46 48 49 51 Administrative expenses 70 72 74 76 79 81 Other expenses 20 21 21 22 23 23 Depreciation 4 4 4 4 2 0 Total expenses 558 574 592 609 625 642 Net income before interest and taxes 372 373 384 396 410 424 % of sales 17% 17% 17% 17% 17% 17%