The income approach is the dominant approach in business valuation. The discounted cash flow method captures the driving principle of a valuation: value is the present worth of future benefits. Value today equals cash flow discounted at the cost of capital. Discounted cash flow is the most commonly used method of valuation in corporate finance today. It arrives at an estimate of what one would pay today for a series of future economic streams.The cost of capital is also known as the discount rate. It is the expected rate of return for similar investments. Discounting is, in effect, the exact opposite of compounding. To find the discount rate, take an expected payment at a point in time and compound the value backwards at the expected rate of return. The present values of each increment (year) add up to provide the current valuation. A capitalization concept is used in the final year. In capitalizing, the expected future income is converted into a value. Instead of projecting returns into perpetuity, choose a final year (called a Terminal Year) and capitalize that year’s cash flows by a factor (the discount rate less the expected long-term growth rate). Then, compute the
Making the decision to list your business for sale is one of the most important choices that you, as a business owner, will have to make. Listing prematurely can lead to unexpected surprises in due diligence, lower valuation by prospective buyers, and even an inability to close the sale. We have compiled a list of 10 signs that may indicate that your business is not ready to be sold. If you are planning to sell and one or more of these apply to you, dedicate some time to resolving these issues – it will make all the difference!
You may not be ready to sell your business, if:
1 . All of the information necessary to run your business is in your head . This is especially true if you have trade secrets or other sensitive information that is key to successfully running the business. This information needs to be tangible so a new owner can access it as well as protect it.
2. The business’ financial documents are not in order and have not been evaluated by a CPA . This is a huge red flag to a potential buyer. There can be no cutting of corners when it comes to the business’ financial statements. Get your documents in order well before you ever plan to list.
3. Pre-sale due diligence has not been performed . When a potential buyer starts to look at your business, he or she will almost certainly perform their own due diligence, which will uncover any issues your business has. If the first time you learn about problems is when the buyer discovers them, he or she will have a huge advantage in
Certified Public Accountants come in many forms. Some focus purely on doing taxes at the end of the year while others prepare financial statements, manage payroll, assist owners in preparing their businesses for sale, assist prospective buyers in obtaining loans to buy businesses, and much more. Additionally, there are CPA firms that have become a one-stop-shop for all of your financial needs. Regardless of the situation, there are three things you can do to make sure you are finding the best CPA for your business.
1. Communication Skills
This may seem obvious, but let’s delve into what it actually means. This goes beyond whether you can get through to your CPA when you try to call him or her, although this is an important first step. When you do talk, do you understand what he or she is saying? Many CPAs use jargon when speaking to clients, which may sound impressive but does not help them understand what is going on with their finances. Find a CPA that can explain things to you in layman terms.
2. Ask for References
This is KEY to finding the right CPA for your business. Many business owners believe that just because a person has the title “Certified Public Accountant” that they are automatically trustworthy and a good fit for any business. Think about it, you are hiring this person to see some of the most sensitive financial information you have. Obtaining a reference is a small step you can take to ensure the CPA you hire is credible. Ask him or her for three to four names and
You don’t have to search too long before finding material alleging that M&A destroy value. NYU Professor Aswath Damodaran goes as far as to say that asking an investment bank to fairly value an acquisition target is like ‘asking a plastic surgeon to tell you your face is perfect’. When the so-called father of modern valuations is so vehemently against the practice, one might wonder why the volume of M&A transactions continues on its upward trajectory.
Context is required here. Firstly, most academic studies on M&A use event studies to measure the success of transactions. That is, when news of the transaction is publicly released, we assume the stock market’s response to be a gauge of the success or otherwise of the deal (success, as always with the stock market, being a translation for ‘future earnings’). There’s at least one major flaw in this, which even academics will admit to: this assumes that the stock market makes the right call all the time.
Secondly, to give some context on Damodaran’s remark: he’s not arguing against the logic of M&A transactions, as much as it may appear to be the case. His argument is based around the problem inherent in deals: generally, a part of the brokerage fees are based on transaction size. Even we at Morgan & Westfield, as M&A business brokers and M&A advisor, agree that this has the potential to lead to adverse outcomes. But again, it’s far too simplistic to assume that a process that may lead to bias does and will lead to bias.
The economy at large is full of situations where adverse incentives exist.
Buying a business requires more than the willingness to operate a business and a good business plan; it requires financing! Many buyers attempt to secure financing on their own and the reality is that 84% of those loans are denied. One option is obtaining a loan through the Small Business Administration (“SBA”). Many buyers are hesitant to apply for an SBA loan because of certain common myths. This article seeks to dispel those myths and help readers determine whether an SBA loan is right for them. Here to help shed some light on SBA loans and discuss the top 10 myths is Steve Mariani, a business finance adviser at Diamond Financial. Diamond Financial has over 17 years of SBA loan experience and works with the most respected SBA lenders in the country, and consistently secures loan approvals. Here is a countdown of the top 10 myths, starting at number 10:Myth 10: “It takes 9 to 10 months to get a loan through the SBA.”
Steve: Not true. At Diamond Financial, we have a high volume of SBA loans and our average deal takes between 48 and 52 days. So, when we are asked about time frames, we usually quote between 45 and 60 days. Some loans get approved in 2-3 weeks, but that's not the norm. Our overall national average is around 48 days from start to finish. If a buyer produces the documentation that we require, it’s a relatively painless process.Myth 9: “Because the SBA guarantees the loan, the lender doesn't care if it's a good deal.”
Steve: That is absolutely false. The SBA monitors lender’s fault rates, and no one wants to put in a bad loan. Just because the SBA loan has a guarantee behind it