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Over the years, we at American Business Appraisers have come to appreciate the many similarities between the practices of medicine and business appraisal: Both involve science – careful, systematic observation and gathering of facts, Application of proven theories, Both involve art – the use of informed, reasoned judgments based on experience and training, Both physicians… Continue >>>
Assessing risk is a crucial part of valuing a closely-held business. Business appraisers use risk assessments in the income approach to estimate rates of return (discount rates) and in the market approach to select valuation multiples. All else being equal, the higher a company’s risk, the lower its value, conversely lower risk (value drivers) increases… Continue >>>
Webster’s dictionary defines “concentration” as the act or process of concentrating, especially the fixing of close, undivided attention. In business valuation context, it is assessing a company’s risk profile and financial outlook. The presence of substantial concentrations (i.e., risks) frequently results in a lower value, than what otherwise might be expected. Concentrations, from a conceptual… Continue >>>
At least weekly we are asked to look through a valuation report, and find ourselves saying, “what in the world…?” Most often, the document supplied to us for review, cites earnings before interest, taxes, depreciation and amortization (EBITDA) with adjustments to historical financial information. Adjustments can be perfectly acceptable, as owners run excess personal expenses… Continue >>>
The Tax Cut and Jobs Act (TCJA) contains a provision for reasonable compensation as defined in IRS Code Section 162. Reasonable compensation has always been an important issue in business valuation, but the TCJA has put a much brighter spotlight on the matter, which will be closer scrutinized starting in 2018. There is a new… Continue >>>
Many business owner’s when they want to sell their business, often read about an EBITDA (earnings before interest, taxes, depreciation and amortization) valuation multiples. But when they’re questioned further, what they really mean is they want to sell for a higher EBITDA valuation multiple than discussed in the industry journals. Here, I will identify occurrences… Continue >>>
Top Five EBITDA Adjustments Oftentimes, earnings before interest, taxes, depreciation and amortization (EBITDA) are used as a proxy for a firm’s operating cash flow. While EBITDA can be interpreted in different ways, this type of earnings stream can be used to produce a value for a business or business interest by the application of a… Continue >>>
What is a reasonable selling price for a business? This is a question that arises for many business owners and others interested in pricing a business. To some degree, every business is unique and therefore, no one-size-fits-all valuation formula works for all businesses or for a particular industry. For example, sometimes a dentist may hear… Continue >>>
The Federal estate tax is a tax on the transfer property at death. It is applied to estates for which at-death gross assets, the “gross estate”, exceeds the filing threshold. Included in the gross estate are real estate, cash, stocks, bonds, businesses, and decedent-owned life insurance policies. Deductions are allowed for administrative expenses, indebtedness, taxes,… Continue >>>
In finance, we use words like price and value, as if they were interchangeable. I have been guilty of this myself at times. It is worth noting, price and value not only come from different processes, but are determined by different variables and yield different numbers at the same point in time. The essence of… Continue >>>
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