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P.C. Geffers, Associates

 

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A FEW General Tips on "Valuing a Business."

Several items on the financial statement may have to be adjusted or recast - and added back - to understand the real earning power of the business.

Business owners always try to pay the least amount of tax possible.

Some of the items to take a close look at include . . .


  1. Salaries of the owners and family members - and the actual hours worked.

  2. Personal expenses of the owners and family members, - (Cell phones, auto expenses, insurance, other perks, Etc., Etc., Etc.

  3. Sellers personal consumption of any products or services sold or produced by the business.

  4. Any home expenses charged to the business.

  5. Pleasure trips charged as business trips.

  6. Owners personal professional or legal services charged to the business.

  7. Above market rent charged for the Real Estate personally owned.

  8. Depreciation and Amortization expenses.

  9. Interst expense and any capital leases expensed.

  10. Taxes paid by the business,

Once the "REAL" earning power of the business is determined it is compared to the earning power of recently SOLD similiar type businesses.

This is the direct comparison or "Market Approach" method.

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Another technique used to value a Business is the "Discounted Cash Flow" method.

Assumptions are made for future operations and results - and then are discounted back to today's value.

The result is the amount someone would pay for the future projected cash flow.

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Other valuation methods may be used when the business needs to be sold quickly.

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Finding the "Best Buyer" - which will produce the "Best Fit" for a Business - will always result in a "PREMIUM" over any method used.