Business Valuation
Business valuation for SBA loans, buyouts and acquisitions
Operating companies valued as going concerns, including goodwill and other intangibles. Independent, prepared in conformity with USPAP, and written for the lender, the buyer and the seller.
Uses
When a valuation is needed
- SBA 7(a) and conventional acquisition loans
- Partner buyouts, buy-sell agreements and ownership transfers
- Purchase price support for buyers and sellers
- Allocation of the price between equipment, real estate and goodwill
- Owner planning before a sale
Method
How a business is valued
Three approaches are considered. The weight given to each depends on the business, the data and the purpose.
- Income approach. Normalized earnings or cash flow, adjusted for owner compensation and one-time items, converted to value with a rate supported by market evidence.
- Market approach. Sales of comparable private businesses and, where useful, public company data, adjusted for size and risk.
- Asset approach. The value of the tangible and identifiable intangible assets. It sets a floor and is the primary method for asset-heavy companies.
Business valuations follow USPAP Standards 9 and 10. When equipment is part of the deal, it is appraised under Standards 7 and 8 and tied to the business value, so goodwill is not double counted.
Independence
No stake in the outcome
The appraiser has no brokerage commission, lending fee or ownership interest in the business being valued. The engagement is with the client named in the report, and the intended users are stated up front.
Questions
Business valuation questions
Do you value businesses for SBA 7(a) acquisition loans?
Yes. Valuations for SBA change-of-ownership loans are a core service. When the deal also includes equipment, both can be valued in one engagement so the allocation is consistent.
What is goodwill in a business valuation?
Goodwill is the value of a business beyond its identifiable tangible assets. It reflects customer relationships, reputation, workforce, systems and expected future earnings. In a going-concern valuation it is usually measured as what remains after the tangible assets are valued.
What documents are needed?
Typically three to five years of financial statements and tax returns, a current interim statement, an equipment list, owner compensation, the purchase agreement or letter of intent if there is one, and a description of the business.
Which approaches are used to value a business?
The income approach, which converts expected earnings or cash flow into value; the market approach, which uses sales of comparable businesses; and the asset approach, which builds value from the underlying assets. The report explains which were relied on and why.
Is a business broker's opinion the same as a valuation?
No. A broker's opinion of value supports a listing price. An independent valuation is prepared under USPAP by an appraiser with no interest in the transaction, which is what lenders and courts generally rely on.
How long does a business valuation take?
Most assignments are delivered within two to three weeks of receiving complete financial information. The delivery date is set in the engagement letter.
Have an assignment?
Send the asset list or company name and the intended use. You will get scope, fee and timing back by email.