Branch Office Opportunities
Main Office (714) 210-3979
600 W. Santa Ana Blvd, Suite 525
Ana, CA 92701
How to evaluate a proposed
simple about estimating the value of a business you wish
to acquire. You must not rely solely on the judgement of
your chartered accountant or the seller. You would, in
fact, be well advised to seek out the services of an
expert who specializes in business valuations and have
him or her produce an independent report. Masari,
Inc.'s strengthened ties with business valuation firms
provides for years of professional valuation know-how
are few instances where you will be able to compare
yourself with other market transactions. Not only is
information on such transactions relatively rare, but
little may be known about the specific conditions.
Lastly, the terms may be too closely related to the
particular sector to prove useful.
degrees of assurance
three types of reports, which differ in terms of scope
of the work done, the assurance they provide, and
obviously the price. Following is a list of these
reports, from the most general to the most detailed:
To prepare their
reports, evaluators look at the facts and financial
data, formulate a conclusion, add a disclaimer regarding
the scope of the mandate (which varies with the quality
of the report provided – see below), and the possible
impacts on the estimated value.
- Calculation report, which
provides an approximate valuation for initial
- Assessment report, which is
ideal for preliminary negotiations, succession
planning, and situations involving important issues
subject to budgetary constraints.
- Opinion report, which is
appropriate in situations that involve high risks,
important issues, or when there are legal proceedings.
The work required
The work required to produce a
calculation report involves a review and analysis
of the financial information and may occasionally
include meetings with management.
assessment report takes the same approach but is
not as exhaustive. The difference between the two is a
matter of the valuator's professional judgement.
The opinion report requires significantly
- Review of the letters patent,
bylaws, and shareholder agreements;
- Research on the business'
economic situation and sector;
- Research on market conditions
and the competition;
- Review of the clientele
(contracts, backlog of orders);
- Review of suppliers
- Visit to the business;
- Review of financial,
historical and financial, historical and forecast
- Rationale for the choice of
discount and capitalization rates using accepted
step in the process of establishing a price consists of
determining the fair market value of the business. The
three main valuation principles are:
Valuation methods and
- Value is dependent on
- Value is dependent on future
- Value is dependent on tangible
There are two basic
ways of determining the value of a business:
- Liquidation value, which
assumes that the business sells all its assets, pays
off all its debts, including taxes, and distributes
the surplus to its shareholders.
- Going concern value, which
assumes, on the contrary, that the business continues
to operate. This value can be calculated in different
ways, the most common being:
- Capitalization of typical
net earnings: This approach assumes that a value
can be attributed to future earnings resulting from
the acquisition. To obtain the going concern value, a
capitalization multiple is applied to these earnings
and non-operating assets are added.
- Capitalization of typical
cash flows: This approach is the same as that for
capitalization of typical net earnings, with the
exception that cash flows, rather than the earnings,
- Discounting of expected
future cash flows: This method consists of
determining the most likely future cash flows and
discounting them at the valuation date.
- Determination of adjusted
net assets: According to this method, liabilities
are subtracted from the determined fair market value
of the assets. It is used for businesses such as those
in the real estate sector, whose value is
asset-related rather than operations-related.
There are some sectors
in the service industry where the value of a business
is based on a multiple of revenues. For example, an
insurance brokerage firm is worth 1 to 1.5 times the
commissions received over a given period, determined
Valuating businesses is not a
simple exercise, nor is it an exact science. It simply
provides a theoretical value that will give you an
idea of the fair price to pay for a business. In the
final analysis, purchase conditions and the final
price paid will be determined during the course of
negotiations that you hold with the vendor.
To have a Business Valuation done on your business,
e-mail us here
Home | Business
Loans | Commercial
Mortgage | Residential
Mortgage | Auto
Equal Housing Lender.
Inc. is a corporation Licensed by the
of Real Estate. License # 01357965
Web Design & Hosting
Copyright 2002, Masari, Inc.